STOCKHOLM (Reuters) - Sweden’s Atlas Copco (ATCOa.ST) said it would split into two listed companies in 2018, forming an industrial business and a separate mining and civil engineering firm whose equity would be distributed to the same shareholders.
Atlas Copco also appointed Mats Rahmstrom, currently head of its Industrial Technique business, as chief executive from April. Rahmstrom replaces Ronnie Leten, who turned 60 last year, and is stepping down after eight years.
Atlas Copco will concentrate on industrial customers, while the new company, with the working name NewCo, will focus on mining and civil engineering. Rahmstrom, who has been with the company for almost 30 years, will stay with the larger and more profitable industrial business when the split takes place.
The industrial company, which will continue to be known as Atlas Copco, has annual sales of 74 billion Swedish crowns ($8.3 billion) and an operating margin of about 20 percent.
The divisions which will form the new mining and civil engineering company have annual sales of around 28 billion crowns with an operating margin of about 16 percent. They have been hit by the fall in commodity prices over the last two years.
“While a surprise, the decision to separate Atlas Copco into two companies should allow for more focused management and better capital allocation and value creation,” Morgan Stanley said in a note. It has an “Overweight” rating on the stock.
Investor AB (INVEb.ST), Atlas Copco’s largest shareholder with 22.3 percent of votes, said it supported the proposal and that both the two companies would remain core investments.
Rahmstrom, 51, had been touted as a leading candidate to take over as head of Atlas Copco.
During his time at Industrial Technique, which sells industrial power tools and car assembly gear, its sales have doubled and margins have become the highest in the group, topping 23 percent in the third quarter.
The news fits into a pattern across Europe where a wave of spin-offs through initial public offerings (IPOs) is under way.
In Sweden, hygiene products group SCA (SCAb.ST) is planning a split, and Sandvik (SAND.ST) is looking at a listing of its specialty steel unit Material Technology, according to business daily Dagens Industri.
While several European spin-off plans have come about after investor pressure, Atlas Copco’s proposal comes after its shares have surged and organic growth returned for the mining business after several tough years.
“We see that there are very few synergies between the businesses with a very limited overlap of customers,” Atlas Copco Chairman Hans Straberg told a news conference.
“We have now grown the company in such a way that it makes sense to have these two businesses stand on their own.”
Atlas Copco shares rose 0.6 percent at 1307 GMT, outperforming a 0.4 percent drop in the STOXX Europe 600 Industrial Goods & Services Index.
Its shares are up 265 percent with Leten as CEO, compared with a 136 percent gain for the European sector index, and a 74 percent gain for closest peer Sandvik.
Reporting by Johannes Hellstrom, additional reporting by Rebecka Roos; Editing by Keith Weir; editing by Alistair Scrutton