Bloomberg News

Atlas CEO Set to Return Cash to Owners on Lack of Major M&A

February 21, 2013

Atlas Copco AB (ATCOA) is poised to return excess funds to shareholders next year as the largest maker of air compressors struggles to find major acquisition targets.

While the company could manage a $5-billion deal, “there is nothing on the plate like that” and a major acquisition target to expand the mining operations also “doesn’t exist,” Chief Executive Officer Ronnie Leten, 56, said in an interview. Targets in the $100 million to $200 million range are most probable, he said at the company’s headquarters, located over Stockholm’s only mine, where Atlas Copco tests its products.

Atlas Copco, with a market valuation of $35 billion, prefers to use its cash to invest in growth, although “at the end of the day you need to do something” with the surplus cash, the CEO said. The company could return money as a dividend, buy back shares or redeem bonds, he said.

Demand for air compressors, rock drills and assembly systems helped the company to raise its 2012 dividend by 10 percent and more than double its cash holding. The strategy to seek deals in niche markets was evident last year when Atlas Copco agreed to buy 10 companies, including Meyco Equipment to add machines for spraying mines with concrete. It’s last large acquisition was in 2007 when it bought Swedish paving-tool maker Dynapac AB for 6.3 billion kronor ($1 billion).

Leten’s comments damped speculation that he would be interested in purchasing Joy Global Inc., (JOY:US) the largest maker of underground mining machinery.

Filtration, Vacuum

Citing a person it didn’t identify, Sweden’s Dagens Industri reported this week that Atlas Copco may be interested in buying the Milwaukee-based company with a market value of about $7 billion. Today, Joy declined as much as 4 percent in U.S. trading, giving the company a market value of $6.7 billion.

Because Atlas Copco would face antitrust issues if it tried to buy tools and compressor assets in the U.S., the company targets selective deals in surrounding products such as filtration and vacuum offerings, Leten said.

The company scans between 200 and 300 targets each year and while he sees some opportunities, potential purchases are “expensive” at the moment, the CEO said.

“Our first strategy is of course to do small- to medium-size,” Leten said, adding that all cash holdings could potentially be used for purchases.

The executive said he considers his own office his worst investment since assuming command at the company as he spends only about 40 days per year in the room because of extensive traveling. He joined the company in 1985 and took command in 2009.

Wallenberg Stake

Atlas Copco was founded in 1873 to build railroads in Sweden and later added air compressors and diesel engines. The company equipped the ship used by Norwegian explorer Roald Amundsen when his team was the first to reach the South Pole in 1911. One of the founders was financier Andre Oscar Wallenberg, who also established Stockholms Enskilda Bank (SEBA) in 1856. The Wallenberg family is still a major stakeholder through Investor AB (INVEB)’s holding of 22.3 percent of votes and 16.8 percent of the capital.

Leten said he aims to make Atlas Copco a “Wal-Mart for plant engineers,” offering a one-stop shop with all equipment and necessary services. The company is turning 140 years today and to celebrate, the CEO will be in New York to open the Nasdaq stock exchange.

U.S. Bet

Atlas Copco gained 20 percent in Stockholm trading in 2012, while rival Sandvik AB (SAND), the world’s biggest maker of metal-cutting tools, added 21 percent and Sweden’s benchmark stock index, the OMX Stockholm 30 Index, gained 11 percent. Atlas Copco has risen 3.7 percent since the start of this year, valuing the company at 219.9 billion kronor.

Leten, the company’s 11th CEO, said he is increasingly optimistic about the U.S. business, where the company is now growing faster than in China and India. U.S. demand for Atlas Copco’s products is biggest in the tools, motor vehicle and compressor businesses and the country overtook China last year as the group’s biggest market.

While Atlas Copco plans to add more staff and products in the U.S., it will probably face more modest growth rates in China compared to increases of more than 10 percent in recent years, Leten said. There is still good local demand for more sophisticated mining equipment and tools and China’s construction business is starting to recover, he said.

Still, Leten’s “canary birds,” the mid-sized compressors he uses as indicators of where a market is heading, are “not really flying high” in China, he said. At the moment, they’re rather “fluttering.”

To contact the reporter on this story: Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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