02-07-2021

Valmet and Neles to merge creating a leading company with a unique offering for process industries globally

Valmet Oyj and Neles Corporation announce that their respective Boards of Directors have today signed a combination agreement and a merger plan to combine the two companies through a merger.

Transaction highlights

* The Combined Company will be a leading company with a unique offering for process industries globally with illustrative combined net sales for 2020 of approximately EUR 4.3 billion. In addition, it will have a globally balanced expert organization of approximately 17,000 professionals.

The Combined Company expects to have growth potential in all current businesses and in new emerging sectors supported by favorable megatrends. It will also have enhanced growth opportunities across automation and flow control serving a range of various process industries with a strong sustainability focus. The Combined Company will benefit from broader revenue and cost synergies anchored in the strong industrial logic of combining flow control and automation systems.

* The combination is expected to generate annual run-rate synergies of approximately EUR 25 million of which approximately 60 percent are expected to be achieved by 2023 and approximately 90 percent by 2024. Total one-off implementation costs related to synergies are expected to be approximately EUR 25 million.

* The proposed combination will be implemented as a statutory absorption merger whereby Neles will be merged into Valmet.

* Upon completion, Neles’ shareholders (excluding Valmet as well as Neles with respect to treasury shares held by Neles) will receive as merger consideration 0.3277 new shares in Valmet for each share they hold in Neles at the end of the last trading day preceding the date of registration of the execution of the merger (the “Effective Date”) whereby, based on the current number of shares issued, Neles shareholders (excluding Valmet as well as Neles with respect to treasury shares held by Neles) would own approximately 18.8 percent of the shares and votes of the Combined Company, and Valmet shareholders would own approximately 81.2 percent of the shares and votes of the Combined Compan

* Neles may distribute to its shareholders an extra distribution of funds in the amount of up to EUR 2.00 per share either as dividend or return of equity or a combination of the aforementioned prior to the Effective Date.

* The merger consideration, noting additionally the above-mentioned extra distribution of funds, implies a value per Neles share of EUR 14.22 using Valmet’s closing share price of EUR 37.29 on July 1, 2021, corresponding to a premium of 16.4% compared to Neles’ closing share price on July 1, 2021 and a premium of 19.8% compared to the last three-month volume-weighted average price ending on July 1, 2021.

* The Boards of Directors of Valmet and Neles have decided that it is in the best interest of their respective shareholders to propose the combination to their respective EGMs.

* Shareholders representing approximately 16.9 percent of the shares and votes in Valmet, and shareholders representing approximately 15.4 percent of the shares and votes in Neles, have subject to certain customary conditions irrevocably undertaken to vote in favor of the combination. Together with Valmet, the above-mentioned shareholders in Neles hold approximately 45.0 percent of the outstanding shares and votes in Neles.

* The Board of Directors of Valmet has together with its management considered appropriate preliminary financial targets for the Combined Company and agreed on the following framework: net sales for services and automation business to grow over two times the market growth, net sales for capital business to exceed market growth, Comparable EBITA margin to be 12—14%, Comparable return on capital employed (ROCE) before taxes to be at least 15%, and dividend payout to be at least 50% of net profit.

* Valmet has obtained necessary commitments for the financing of the completion of the merger and Neles has obtained necessary commitments for the extra distribution of funds.

* The combination is subject to, among other items, approval by a majority of two-thirds of the votes cast and shares represented at the respective Extraordinary General Meetings (“EGM”) of Valmet and Neles, and the obtaining of merger control and other regulatory approvals.

* The completion is expected to occur on or about January 1, 2022, subject to all conditions for completion being fulfilled.

* It is proposed that the Board of Directors of the Combined Company will include six (6) directors from the current Board of Directors of Valmet (Mikael Mäkinen, Aaro Cantell, Pekka Kemppainen, Per Lindberg, Monika Maurer and Eriikka Söderström) and two (2) directors from the current Board of Directors of Neles (Jaakko Eskola and Anu Hämäläinen). It is proposed that the Combined Company’s Chairman of the Board of Directors will be Mikael Mäkinen and that the Combined Company’s Vice Chairman of the Board of Directors will be Jaakko Eskola.

Pasi Laine will continue to act as the President and CEO of the Combined Company after the completion of the merger.
Valmet Chairman, Mr. Mikael Mäkinen, said: “The combination of Valmet and Neles will create a broad and competitive product offering for our customers and build on the excellent reputation of both of our businesses. The transaction creates a global industrial leader with a bright future beyond what we could achieve separately. Together our businesses are better positioned to drive innovation and leadership in sustainability.”

Neles Chairman, Mr. Jaakko Eskola, said: “The common heritage of Valmet and Neles will allow for a smooth integration of our two companies to the benefit of shareholders, customers and employees. Neles will benefit from enhanced scale to accelerate its growth and building on the excellent work done by Neles management since the formation of Neles as an independent company in 2020.”

Valmet President and CEO, Mr. Pasi Laine, said: “We are delighted with the announcement of the merger which will create an even stronger Valmet with a strong offering to global process industries and a global team of 17,000 professionals around the world. The Combined Company will have solid business fundamentals, a strong financial profile, attractive growth potential and estimated synergies contributing to the enhanced shareholder value.”

Neles President and CEO, Mr. Olli Isotalo, said: “Through our capabilities and know-how, we have positioned Neles for best in class growth and profitability and now look forward to accelerating this agenda as part of the Combined Company. We are delighted about the opportunities to continue to execute our growth in flow control across process industries from an even stronger base. The combination also creates attractive opportunities to digitalize our joint services to support customers’ efforts to achieve greater sustainability in their operations.”