UPDATE 1-Finland's Solidium backs Valmet against Alfa Laval's bid for Neles

(Adds Valmet stake in Neles, analyst comment)

HELSINKI, Sept 8 (Reuters) - The Finnish government’s investment firm Solidium backs Valmet’s decision to not sell its holding in newly-formed valves maker Neles to Swedish engineer Alfa Laval, Solidium’s chief executive said on Tuesday.

Solidium is Valmet’s largest shareholder with a 11.14%-stake and its head Antti Makinen called Alfa Laval’s acquisition plan “artificial”, with no synergies in sight.

Alfa Laval announced in July a 1.73-billion-euro ($1.96 billion) bid for Neles, but the Finnish firm’s top shareholder Valmet said the offer was not in its interest, and has increased its holding in Neles since.

Neles shares jumped 36% on the news in July and have since remained above the 11.50 euro per share cash bid from Alfa Laval, raising expectations of higher offers and of a possible counter bid from Valmet.

Meanwhile, Valmet continued to increase its holding in Neles, from 24.7% to 25.11%, Neles said in a stock exchange notification on Tuesday.

Makinen said it made strategic sense for Valmet, which operates in the pulp and paper markets, to either remain a minority owner in Neles or to acquire the whole company.

“Pulp and Paper segment accounted for 27% of Neles’ revenue in 2019 and Valmet’s Automation (business) builds solutions which could make up a highly interesting combination to create new business together with Neles’ valves solutions,” he told Reuters.

RBC analysts said on Monday they expect Alfa Laval to succeed in the Neles acquisition.

Solidium is a major shareholder in 12 listed Finnish companies, including Nokia, Sampo and Stora Enso.

It reported on Tuesday a return on its equity holdings of minus 8.3% for the year to the end of June, hit by the COVID-19 crisis. (Reporting by Anne Kauranen in Helsinki and Milla Nissi in Gdansk; Editing by Mark Potter and Louise Heavens)