The news about UPM-Kymmene starting arbitration proceedings against Metsä Board, related to a deal (divestment of shareholdings) with the Japanese Itochu Corporation is new for me and also quite complicated – I am neither a lawyer nor a business strategist or financial officer, so I have difficulties parsing what this all means.
One of the reasons why this news is so difficult to parse is that Metsä Board (and Metsä Fibre) is owned by Metsä Group, which itself is owned by the Metsäliitto Cooperation, which is a co-operatitive. The ownership structure of Metsä Board is shown here, but the key issue seems to be Metsä Fibre, which used to be Metsä-Botnia:
1986 Changes in ownership base
Metsäliitto Teollisuus and G.A Serlachius merged and founded Metsä-Serla, which became the principal owner of Metsä-Botnia. The next change in the ownership base occurred in 1989 when Nokia Corporation divested its ownership and United Paper mills became the second primary owner of Metsä-Botnia.
2009 Metsä-Botnia become a subsidiary of Metsäliitto Cooperative
The ownership of Metsäliitto and M-Real in Metsä-Botnia increased to 83% and the share of UPM-Kymmene was reduced to 17% in December 2009 and the Fray Bentos pulp mill was divested to UPM-Kymmene.
2011 Metsäliitto Group increases its ownership in Metsä-Botnia
Metsä-Botnia redeemed its own shares from UPM-Kymmene on the basis of a shareholders’ agreement the parties made in 2009. The number of redeemed shares corresponded to 6.7% of the whole share capital of the company. After the redemption Metsäliitto Cooperative owns around 57% of the company, M-real 32%, and UPM-Kymmene 11%. Metsäliitto Group was granted a call option to the rest of the Metsä-Botnia shares it owns. The call option is valid for two years.
2012 Metsä-Botnia becomes Metsä Fibre, part of Metsä Group
On 11 April 2012, Metsä Group’s parent company Metsäliitto Cooperative, Metsä Board and Japanese Itochu Corporation agreed on a transaction in which Itochu will acquire a 24.9 per cent strategic stake in Metsä Fire Corporation. After the transaction, Metsäliitto Cooperative owns 50.2 per cent, Metsä Board 24.9 per cent and Itochu Corporation 24.9 per cent of the total share capital of Metsä Fibre.
So, UPM-Kymmene has a long history of ownership relations with Metsä-Botnia/Metsä Fibre. The history shown above indicates a declining share for UPM-Kymmene in Metsä Fibre, and apparently in 2012 the last share owned by UPM were ‘bought back’ and the whole ownership structure was changed. I have no idea or opinion regarding to the strategical benefits of not being tied to UPM-Kymmene anymore.
But it is perhaps interesting that UPM is starting arbitration proceedings against Metsä Board (the former M-Real), rather than Metsä Group. The news release refers to a breach of the tag-along clause. I can’t know what the exact formulation was but this is a general tag-along clause:
This Tag Along Clause is for use in Shareholders’ Agreements where one of the parties is a minority shareholder. It is designed to protect the position of the minority shareholder where the majority shareholder decides to sell a defined percentage of shares in the company.
Where the majority shareholder decides to sell his shares, this clause gives the minority shareholder the right to tag along with the sale, i.e. to sell his shares to the same purchaser on the same terms and conditions. This prevents a minority shareholder from being stranded with an outside investor and with little or no effective control over the company.
I simply wonder what breach UPM-Kymmene means here (I mean, I really don’t know about these issues). I guess this call option is the key point here, which gave Metsäliitto the right to do whatever it wanted with the remaining shares of Metsä Board – meaning also the shares that nominally were still with UPM.
So for the arbitration court I guess the question to answer is: can Metsäliitto/Metsä Board sell those shares of another company that it potentially owns through the call option and how does this effect the rights enshrined in the tag-along clause, which is relevant only if UPM-Kymmene still can be considered a minority stakeholder in Metsä Fibre at the date the deal was sealed?
Difficult question. It also may have some impact on the relations within the Finnish Forest Industries Federation, although this probably cannot be observed.