Rautaruukki, Wärtsilä, and SKF to join forces in long steel production

Jointly-owned new company will employ over 5,000 people

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Rautaruukki Corporation, Wärtsilä Corporation, and Swedish AB SKF have decided to join forces and combine their long steel businesses into a new jointly-owned company.
      The domicile of the new company - which has yet to be given a name and is currently referred to as "NewCo" in the companies' press releases - will be Helsinki, but the company's headquarters will be situated in Stockholm.
     
The long steel business mainly consists of steel bar and steel wire production, plus production of further refined products of these two.
      The long steel merger will not affect Rautaruukki and SKF's other operations, which will continue as before.
      Rautaruukki will render into the new company its long steel production subsidiary Fundia, the main units of which are the Koverhar and Dalsbruk steel plants on the south coast of Finland and further units in the Netherlands and Sweden.
      In the long products department, Rautaruukki intends to maintain the production of reinforcement steel as part of its own business.
      The most distinct entity to enter the new company is Wärtsilä's subsidiary Imatra Steel, which specialises in speciality steel production, for example for the automotive industry.
      Fundia's Finnish plants use mainly steel from Koverhar's blast furnace. Its other units mainly utilise recycled steel or "scrap iron".
     
The new company will employ 5,200 people in six countries. Its turnover will be in the region on EUR 1.3 billion, half of which will be generated by Rautaruukki's Fundia. SKF's Ovako Steel has a turnover of around EUR 400 million, whereas Imatra Steel's annual net sales stand at EUR 250 million.
      At present the profitability of the Finnish companies is significantly better than that of their Swedish counterpart.
      Last year both Rautaruukki and Imatra Steel long steel operations' operating profit was over eight percent of turnover, against Ovako Steel's three percent margin. Rautaruukki also announced its annual figures for 2004 on Thursday, recording profit before extraordinary items and taxes of EUR 430 million on net sales of just under EUR 3,600 million. Profits were up substantially from the 2003 figure of EUR 148 million, in part thanks to lower raw material costs brought by the weakened US dollar.
      Rautaruukki, SKF, and Wärtsilä will own 47.0%, 26.5% and 26.5% of the new company respectively. The co-owners have agreed that the new company's net debt at the moment of derivation will be 37.5 percent of net sales.
      All three companies justify the setting up a new company with their desire to concentrate on their core business activities.
      On the board of the new company, the largest owner Rautaruukki will have the chairman and two board members, whereas the other two companies will have two board members each.
     
"With the division of ownership we aim to secure democratic governing as the primus motor of the new company. Should one company have an absolute majority, the whole operative responsibility would also fall into its lap", notes Rautaruukki CEO Sakari Tamminen.
      "We are seeking a long-term commitment to this company, which will be our significant sub-contractor in the future. After two to three years it will be time to consider listing on the stock exchange", explains SKF President and CEO Tom Johnstone.
      Wärtsilä CEO Ole Johansson believes it will come as no surprise to anyone that in the future Wärtsilä wants to concentrate purely on power plants and power production for ships.
      The three sides estimate the cost synergies of the merger will create annual savings in the region of EUR 30-40 million.
      No major personnel rearrangements are expected at any of the companies.


Links:
  Rautaruukki
  SKF
  Wärtsilä
  Rautaruukki, SKF and Wärtsilä to merge long steel businesses
  Rautaruukki Annual Result 2004

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