April 13, 2017 / 7:22 AM / 3 years ago

SCA shares hit record high on report of $22 billion bid

STOCKHOLM (Reuters) - Shares of Sweden’s SCA (SCAb.ST) touched a record high on Thursday on a media report that a group of private equity firms had bid 200 billion crowns (17.85 billion pounds) for its hygiene products arm, a top global producer of diapers and toilet paper.

A woman walks past an advertisement of a tissue paper brand of Swedish SCA company on a street in Santiago, Chile, November 10, 2015. REUTERS/Ivan Alvarado/File Photo

Swedish daily Dagens Nyheter, citing unnamed sources, said at least two international private equity firms had jointly bid for the hygiene business a few weeks ago. It did not name the bidders.

Last week SCA formally approved a proposal to spin off its hygiene products business, to be called Essity, as a separately listed unit, leaving the forestry business under the SCA name.

SCA, the world’s largest maker of incontinence pads and the second largest in consumer tissues such as napkins and toilet paper, declined to comment on the bid report.

The hygiene business accounts for the bulk of SCA’s value.

The report did not say whether the 200 billion crown figure represents the suitors’ basic valuation or total enterprise value, which also includes debt.

Private equity buyers often cite enterprise value when discussing bids.

Handelsbanken Capital Markets analyst Karri Rinta said a 200 billion crown price tag for the business would represent a good price for SCA but would be “pretty uninteresting” to shareholders if it referred to enterprise value.

Analysts at investment bank UBS and Handelsbanken Capital Markets estimate the hygiene operation’s worth at between 193 billion crowns and 213 billion crowns.

The business had 31 billion crowns of long-term debt as the end of 2016, according to a statement this week.


SCA shares jumped as much as 9.8 percent to a record high early on Thursday before closing the shortened trading day with a gain of 7.8 percent, the top performer in the STOXX Europe 600 index.

SCA has said it aims to list Essity as soon as possible and no later than the second half of 2017.

Investor interest in SCA has increased since it announced the spin-off plan last August, with several media reports of planned bids for its forestry arm.

Essity counts U.S. companies Procter & Gamble (PG.N) and Kimberly-Clark (KMB.N) among its main rivals.

Its leading brands include Plenty kitchen roll, Libero baby diapers and Tena incontinence care products, with diaper sales growing in emerging markets and incontinence pads increasingly in demand among ageing populations in wealthy nations.

Roger Bostrom, a union representative on the SCA board, said he was unaware of any bid. “I have not seen anything, heard anything, and I have no comment,” he told Reuters.

A banking source said he did not expect one of Essity’s rivals to make a bid, adding that Procter & Gamble would face antitrust problems and that Kimberly-Clark had already exited parts of its European business some years ago.

Essity, with sales of 101 billion crowns last year, accounts for 86 percent of total group sales. The division made an adjusted operating profit of 11.8 billion crowns.

The SCA group had an overall market value of 194 billion crowns at Wednesday’s market close.

SCA agreed in December to buy German bandage and plaster cast maker BSN Medical for 2.74 billion euros. The new acquisition form parts of Essity’s business.

Additional reporting by Anna Ringstrom and Bjorn Rundstrom in Stockholm and Martinne Geller in London; Editing by Mark Bendeich, Jason Neely and David Goodman

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