Tag Archives: METSO

METSO Board of Directs rejects merger proposal + The Weir Group response

Since last year, METSO’s paper and pulp machinery division operates as a separate company (see here). The apparent reason for this was the large divergence in growth perspective for automation/machinery for the mining industry on the one hand and the pulp&paper industry on the other hand.

Today METSO published a press release which contained the decision to reject a merger proposal by the Weir Group. The Weir Group responded as follows:

The proposal was structured to enable the shareholders of both Metso and Weir to share in the very significant value creation that would result from material cost synergies in addition to further revenue synergies expected to be generated through the combination.

In keeping with the spirit of the merger proposal, Weir had proposed that the combined company would have a significant presence in, and a long term commitment to, Finland as well as the UK and would be listed in both Finland and the UK with full index inclusion in both countries, alongside shared management and board responsibilities.

Weir continues to believe that there is a compelling strategic rationale for bringing the two companies together in a merger structure.  The Board of Weir believes that it has made an attractive merger proposal and there is no certainty that it will revise the terms of its proposal.

I do not know much about mergers and how they usually begin, but I think it is very interesting, from a sociological point of view, that both companies in their statements refer so openly to shareholder value creation. I have to think about this issue more, but in a sense it is worrying if companies are more interested in shareholder value creation than in providing good products and services (which probably both of the companies nonetheless do). I understand that this logic is followed in the context of listed companies, which means they are to a large extent dependent on the stock market to raise capital. But it in some way seems contradictory from the view of Corporate Social Responsibility.

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METSO:n vähennyksistä

Vuoden alussa oli päättynyt yt-neuvottelut ja olisi lähdössä 101 ihmistä METSOn työvoimasta.

Kirjoitin vähän aikaa sen jälkeen METSOn kahteenjakaumisesta, mutten ehtinyt monista syistä palaamaan siihen aiheeseen. Kirjoitin muun muuassa, ettei ole kovin paljon kysyntää paperiteollisuuteen liittyviin koneisiin (ei Euroopassa ainakaan), joten sinänsä METSOn päätös oli ymmärrettävää.

Näin uutisoitiin elokuussa METSOn yt-neuvotteluista, jotka ovat nyt päättyneet. Tulos?

Metson Massa, paperi ja voimantuotanto -liiketoiminta on saanut päätökseen yhteistoimintaneuvottelut useimmissa paperiteollisuutta palvelevissa yksiköissään. Neuvottelujen tuloksena yhtiö vähentää Suomessa yhteensä 660 työpaikkaa.

Henkilöstövähennyksillä saavutetaan 50 miljoonan euron säästö vuosikustannuksissa. Tavoite on 100 miljoonaa.

Ei ole yllätys, että tämä koskee nimenomaan paperiteollisuuden METSOa, tai uudella nimella VALMET ilmeisesti. Mutta on kurja, että taas niin monta laadukasta työpaikkaa katoaa Suomesta.

Puhtaasti yritysnäkökulmasta tämä on varmaan METSOlle jotenkin järkeää, mutta toistan, mitä kirjoitin STX Raumasta – taustalla on oikeasti rakenteellisia asioita, kuten EMU ja liian korkea euron kurssi. Tässä kirjassa Varoufakis et al kirjoittavat, että Saksan talouspolitiikan ja EMUn takia Saksan talous imee muualta (=Etelä-Euroopasta mutta myös Suomesta) pääomaa mitä muuten olisi voinut käyttää muiden maiden talouksiin. Tämän väitteen taustalla on valtavan laaja tutkimus (mm.) EMU:n vaikutuksista pääomavirtoihin, ja on ihan selvää, että Saksa ei anna ketään koskea sen asemaa vientijättinä. Tämä neomerkantillistinen politiikka ajaa Euroalue pohjaan, koska emme voi kaikki olla yhtä kilpailukykyisiä kuin Saksa, erityisesti jos Saksa ei niin halua.

METSO and its split in two

The big news in the paper industry is the announcement that it will split itself in two. The obvious reason is that its mining-division has much more potential for growth than the paper- and pulpdivision (as there is not much prospect for growing demand of paper machines).

I will get back to this subject when I have time – real life intrudes, deadlines loom. But for now it is interesting that in the Finnish media the importance of the maintenance and service parts of the pulp/paper division have been growing in importance. This is related to a theme I am working on in terms of employer organizations and labour unions – the idea of value chain unionism. But I will get back to that as well. For now, some Finnish links on METSO:

Background of METSO

The added value of the split of METSO

The importance of the mining division

 

Award for Finnish consortium developing a novel method of biofuel production!

This article has not yet been translated in English but here is the original press release from EARTO (the European Association of Research and Technology Organisations). VTT, in co-operation with Fortum, Metso and UPM-Kymmene has won a prestigious award for its biofuel production method. The Finnish press release says that commercial exploitation of the method begins in a year, when Fortum opens an integrated biofuel and thermal heating plant in Joensuu, Eastern Finland.

From the EARTO press release this sentence caught my eye: ‘Prime candidates for new and retrofit implementations are the 200 CHP [Combined Heating and Power] plants within the mechanical wood and pulp and paper industries in Europe and North America, where their use could generate 14,000 jobs.’

This is great news!

If you don’t achieve your goal the first time…

…try another time. Yesterday METSO announced that the co-decision negotiations over a reduction of the workforce in Finland was concluded and that staff will be reduced by 536 people. Metso originally announced that perhaps 630 people would be fired. Today METSO announced that it would reduce the workforce by 160 more people. These are in part in other locations than in the previous negotiations.

Yes, the Finnish paper industry is still in a process of structural change (which is an euphemism of course). Yes, the new growth markets are far away in China and Asia. Yes, Finnish labour is relatively expensive.

But – all these things taken into consideration – Finnish workers, especially in industry, have very high skills and capabilities. Furthermore, firing people is of course a way to save money, but the goal of profit means that besides costs, there are also revenues. It is probably partly ‘the market’ that leads to reduced revenues, but what about innovation etc? On The Paperindex Times, METSO is featured heavily regarding quality improvements, innovations etc. like here.
If METSO makes good products that companies want, but revenue nonetheless lags, would it be time to revise profit goals? No, of course not, because shareholders don’t like that. [sarcasm]The only thing that makes shareholders happy, is a company that fires people. [/sarcasm].
Oh, and 536 + 160 makes 696, which may mean that METSO will achieve its original goal of 630 people less. Shareholders will be happy, expect rising shares for METSO. Maybe the extra divident will come after all. [sarcasm again.]

UPDATE: I recently discovered Google Finance and what I said above did not really pan out as expected, although there was a small peak in the beginning of today, see here.

Redundancies vs. Dividend?, or: What is happening in the Finnish Paper Industry?

UPDATE: METSO has cancelled its planned extra dividend.

The announcement by machinery producer Metso Oy, that it will make hundreds of workers redundant from its paper machine -making units, has stirred a lot of controversy. I would like to take a bit distance from the issues at stake and put them in a wider frame. But there are nonetheless the key issues:

1. METSO Oy will reduce its personnel by at most over 600 employees, mostly in the units making paper machines or providing services for the paper industry, and about 150 jobs will be outsourced.

2. METSO Oy announced that it plans to pay an extra dividend.
3. The Finnish state has a 11,1 percent stake in METSO Oy through its investment company, Solidium.

The question is, whether these issues are somehow related, especially the first two. METSO is one of the leading global producers of paper machines and all the parts that belong to them. Also important is their production of cardboard-making machines (which is still somewhat of a growth area). METSO produces other machinery as well, but in the context of this blog those are less relevant.
The reasons stated in the article by Helsingin Sanomat about the news are:

  • Overcapacity of paper machine-producing units, and related,
  • Weakening of competitiveness and profitability
  • Permanently reduced demand for paper machines and switch to cheapers solutions
  • Increased competition and weakened demand for foundry products
  • Diminished investments due to uncertain global economy

Before going into the details of the redundancies and the other issues, let’s tackle these first. Overcapacity is a phenomenon which occurs in relation to the the business environment. In other words, when the business environment changes, the capacity to produce goods might be either spot-on, too little or too much. Obviously there are more factors, but on a simple level you could say that profitability is best when there is under-capacity or suitable capacity. Though in the former there is clearly the situation that profitability could be better if capacity would be optimal.

Markets and economies can change rapidly, but today’s investors and business managers rely to a large extent on forecasts and various scenarios, which take into account different development paths. A good – and leading – example is Jaakko Pöyry Oy’s World Paper Markets up to 2025 – report, published regularly to be bought by the industry’s strategists. The next figure shows the development of Finnish paper industry machinery production (expressed as a monetary value).

What is visible in this figure, is mainly the international success of companies like METSO, as the domestic Finnish paper industry has seen mostly declining investments. This growth can most likely be seen as the success of Finnish (and other) paper industry companies to invest in South America and Asia. From this figure, it is also clear where the potential for overcapacity comes from: wrong estimations of the growth market in (especially but not only) Asia. Like the paper industry companies themselves, also companies like METSO had to find new opportunities for growth, given the stagnation of the European markets.

If I am allowed to speculate a bit, then the stated reasons of diminished demand for foundry products and permanently decreased demand for paper machines would refer mainly to the Asian markets (although of course, the European market is going nowhere, so yes, permanently decreased demand there, too). The increased competition might well come from other established players in this market or from ‘upstarts’ from China. In any case, the reference to ‘cheaper solutions’ might give a clue towards increasing competition from Chinese companies. A simple Google search turned up a lot of Chinese companies providing supplies for the paper industry and also complete paper machines, e.g. this one.
Overcapacity can also occur through the entrance of new producers on the market – I can’t possibly say what the market share of these Chinese companies might be, but in terms of geography and most likely price competitiveness they might well have an advantage over Finnish and other European companies.

So, basically, stating that a reason for reducing the workforce is overcapacity, weakened profitability and competiteveness is clouding the issue. The problem is not with the employees in Finland, but rather in the management of METSO. After all, if this is a globally operating company, the company’s board should be expected to know the impact of various economic developments on its business position. Of course, estimating/predicting market developments is hard, but that is what e.g. Jaakko Pöyry Oy is good at. And it doesn’t take a genius to imagine competing with Chinese companies is hard.
So, in my view,  the reasons stated indicate more of a failing of the management strategies of the company regarding the market it chooses to operate in: the global paper machinery market, where buyers are now mostly located in Asia. Reducing the workforce does not remove the fundamental problem, that METSO may have underestimate the pressure of competition from other companies. Yes, there may be overcapacity, but is this the employees’ fault? It is by itself reasonable to reduce the workforce if there are too many workers given the work that can be done, but the point here is that METSO completely confuses causes and effects. The Finnish employees’ performance has little to do with failed strategy towards the markets in Asia/China. Nor is firing a couple of hundred people going to help very much, as personnel costs are relatively marginal in machinery production.

With this in the background, the firing of more than 600 employees and outsourcing a further 150 looks especially harsh. Why should more than 750 people be displaced from their jobs, since they did what the management asked from them? This is failure of management, just like with Stora Enso and UPM in their American adventures in the early 2000s.
From this we can move on to the misguided decision to probably pay an extra dividend to shareholders (in terms of public relations at least) . This is on the basis of the apparent solid financial situation of the company. Of course, this will benefit the state-owned Solidium investment company as well, but how does that a) help the people who lost their job and b) improve the company’s strategy/competitive position?
Again, in this case, Corporate Social Responsibility is apparently some fashionable phrase. It is true that neither the responsible minister nor the labour unions can do much about this, but telling the truth may put pressure on companies nonetheless.