August 24, 2016 / 11:10 AM / 4 years ago

Sweden's SCA to split into hygiene, forestry firms

STOCKHOLM (Reuters) - Swedish forestry and hygiene products group SCA (SCAb.ST) plans to split into two listed companies in 2017, it said on Wednesday, sending its shares to a record high and fuelling speculation the forestry business might become a bid target.

SCA is Europe’s biggest private owner of forests. Its hygiene business is the world’s largest maker of incontinence pads and No.2 in consumer tissues such as napkins and toilet paper. Its forestry arm produces paper, pulp and wood products.

“This is what everybody has been waiting for,” said Evli Bank analyst Markku Jarvinen. “The businesses are clearly very different from an investment standpoint. The forest business is low return on capital, very stable, and the hygiene business is high return on capital.”

SCA shares jumped as much as 13 percent to a new high of 281.90 crowns, giving it a market value of about $23 billion.

SCA said in August last year it would merge its forest land and forest products businesses into one division, leading many analysts then to expect a split-up of the group.

The company said on Wednesday a separate listing for its hygiene arm, whose brands include Libero, Libresse, Nosotras, Saba and TENA, would “create more shareholder value and incur relatively low transactional risk and relatively low transaction costs”, compared with alternative ways of splitting the group.

Shares in forestry firm Holmen, which analysts have identified as a potential buyer or partner for SCA’s forest products business, rose 6 percent.

Holmen is controlled by Fredrik Lundberg, the Swedish business magnate who is also chairman of SCA’s biggest shareholder, Swedish investment firm Industrivarden (INDUa.ST).

Industrivarden and SCA’s No.2 shareholder, Norway’s sovereign wealth fund, said they backed the planned separation, which will be voted on at SCA’s 2017 annual general meeting. They control 29.8 and 8.7 percent of votes respectively.

Betting on strong long-term growth for hygiene products, SCA has in recent years expanded this business to account for about 85 percent of sales and cut back its paper and other wood products businesses.

The company said on Wednesday a break-up would leave it better placed to succeed in both business areas.

SCA, which was founded in 1929 and competes with Procter & Gamble (PG.N) and Kimberly-Clark (KMB.N), said it planned to list the hygiene business in the second half of 2017 under a new name.

The company makes the bulk of its sales in Europe, where it expects an ageing population to boost demand for incontinence products. It is also expanding in emerging markets, expecting rising incomes there to lift demand for hygiene products.

SCA was thrust into the spotlight in 2014 when Swedish media uncovered a corporate spending scandal that prompted the CEO to resign and led to a change of guard at Industrivarden.

Additional reporting by Helena Soderpalm and Oskar von Bahr, Editing by Mia Shanley and Mark Potter

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