Merger Bonanza Hits Finland as Economic Pain Becomes Asset

Merger Bonanza Hits Finland as Economic Pain Becomes Asset

Finland, reeling from a slump in its two main industries, is finding that a weak economy has turned a number of its businesses into attractive acquisition targets.

Competitors from the U.S., Sweden, the U.K. and Japan are circling in to snap up cheap assets in the northernmost euro nation, including a $1.56 billion takeover offer for steelmaker Rautaruukki Oyj (RTRKS) by Sweden’s SSAB. The risk of job cuts brought by the deals is worth it for an economy in need of transformation, according to Mika Maliranta, research director at the Research Institute of the Finnish Economy ETLA.

It’s “an essential part of economic growth in the long term,” Maliranta said. “This is how the economy becomes profitable and competitive, again producing the prerequisites for the creation of new jobs.”

The export-led economy, which has suffered two recessions in four years, is reeling from a structural shift in its main industries — paper makers and the Nokia Oyj-led technology cluster. In September, Microsoft Corp. announced a deal to buy Nokia’s mobile-phone unit after it succumbed to competition in smartphones. Ship-engine maker Waertsilae said this month it ended takeover talks initiated by Rolls-Royce Holdings Plc.

Finance Minister Jutta Urpilainen has warned that the nation faces “historic” challenges as its biggest industries suffer. Prime Minister Jyrki Katainen said last week his government can’t afford stimulus measures as he targets policies designed to bring about an export-based recovery.

Depressed Economy

Finland is in a “depressed” state, Nobel Laureate Paul Krugman said this month during a Nordic tour, blaming the Katainen administration for peddling austerity that has undermined demand. The nation is one of eight in the 18-member euro area that saw its economy contract in both 2012 and 2013, according to the European Commission. The economy will grow 0.8 percent this year and 1.8 percent in 2015, the Finance Ministry forecasts.

The government, which in November hammered out details on a 9 billion-euro ($12.2 billion) plan comprising structural measures to tackle costs from an aging population, welcomed the purchase of Rautaruukki.

“This arrangement ensures production continues in Finland,” Labor Minister Lauri Ihalainen said in a statement. Rautaruukki would have faced a “rocky path,” had it continued independently, he said.

Job Cuts

SSAB offered to buy Rautaruukki for 10.1 billion kronor ($1.56 billion) to cut costs amid falling steel prices and over capacity. The company will be based in Stockholm and target annual cost savings of 1.4 billion kronor within three years.

The companies said they will need to cut about 5 percent of the combined 17,400 jobs over three years. That comes on top of at least 25,000 job cuts by Nokia as it struggled to regain profitability after losing the smartphone battle to Apple Inc. and devices using Google Inc.’s Android platform.

Nokia today reported a loss of 25 million euros in the fourth quarter, compared with a profit of 193 million euros a year earlier, as sales at its network-equipment division fell.

Finland is at least half a decade behind Spain and Portugal in matching pay with productivity as it drops behind southern Europe in boosting exports, ETLA said in August.

Shutting Units

Unemployment rate was 7.9 percent in December, up 1 percentage point from a year earlier, and 137,000 people didn’t even seek work actively last month.

Still, some politicians say it’s far from clear Finland will benefit from the takeover.

The new company is more likely to shut small units and cut jobs in Finland than in Sweden, Risto Kalliorinne, a member of parliament for the Left Alliance, said by e-mail. The local economy in northern Finland will shrivel and Finland lose taxes as the headquarters move to Sweden, he said.

According to Maliranta, the takeovers are a positive sign and will help in the long run.

“For a wealthy nation, multinational ownership is something to strive for,” he said. “In a best-case scenario, the Finnish technological know-how combines with commercial knowledge from elsewhere.”

Finland is also finding new areas of growth as a thriving startup scene fills the gap left by Nokia. In mobile gaming, “Angry Birds” maker Rovio Entertainment Oy and Supercell Oy, which was valued at $3 billion in a deal with Japan’s Softbank Corp, have ascended from obscurity to worldwide fame as online distribution channels lowered barriers of entry.

More than 30,000 new companies have been created each year since 2006, according to Statistics Finland. That’s partly as a result of the thousands of positions eliminated by the country’s technology cornerstone Nokia.

The recent deals “show there are attractive acquisition targets and good companies in Finland,” said Anssi Rantala, chief economist at Aktia Bank Oyj. “The question is — should we be more worried if there was no interest in Finnish companies?”

To contact the reporter on this story: Kasper Viita in Helsinki at kviita1@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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