By Carly Leonida, European Editor
During July, mineral processing giants Metso and Outotec announced they would be combining their businesses to create “a leading company in process technology, equipment and services serving the minerals, metals and aggregates industries.”
In Metso’s case, a partial demerger is required first. The company’s flow control business area is being spun off and listed under the name of Neles. Meanwhile, all Metso Mineral’s assets and liabilities will transfer to Outotec in return for newly issued shares in the company, which will be renamed Metso Outotec.
Combined, the companies’ sales totaled €3.9 billion (US$4.38 billion) in 2018. If Metso’s June acquisition of Canadian crushing and screening manufacturer McCloskey is taken into account, this figure bumps up to €4.2 billion (US$4.7 billion), putting Metso Outotec on par with Sandvik and just above Epiroc and Weir in terms of sales, and well ahead of competitor FLSmidth.
The companies said the transaction was unanimously recommended by their boards, although it is still subject to approval via a majority vote at their respective extraordinary general meetings, and also regulatory approvals, including competition clearances.
Pekka Vauramo, Metso’s current president and CEO, will take the reins as Metso Outotec’s new president and CEO, and the current president and CEO of Outotec, Markku Teräsvasara, will take on the role of deputy.
Who better to outline the next steps for E&MJ readers than Vauramo himself? But before we look to the future, how did the deal come about?
“This idea is not new,” he told E&MJ. “It’s been discussed a few times over the years, even before the IPO [initial public offering] of Outotec in 2006.
“There were discussions between the owners of Outotec in those days, Outokumpu, and Metso, but it takes time to make these kinds of things happen, and we’re now both ready.”
The companies will continue to operate as competitors until the second quarter of 2020 when the antitrust filings are expected to be complete (according to Vauramo, they are required in 20 countries) and until the relevant authorities have approved the deal.
“What we can do in the meantime is plan the integration, which we will then execute after the deal closes,” Vauramo said. “We have several months to put together a solid plan. A typical integration planning process focuses a lot on revenue and other core synergies between the companies, and how to execute the integration in such a way that we can truly realize them.”
Facilities, Products and Branding
Vauramo explained that while there isn’t overlap of facilities on the production side — both companies have their own manufacturing and assembly facilities that will continue to operate regardless of the combination — the companies do eventually plan to merge their head offices.
Metso is currently headquartered in Helsinki, while Outotec is in Espoo. The two cities are both located in the south of Finland, around a half hour drive from each other. It would therefore probably make sense to use one of the current offices as a base rather than establish a new one at a halfway point.
“There may be some streamlining in other locations that we have in different parts of the world,” Vauramo added. “Everyone realizes that if we have two offices in one city or town, in the future, we will only have one.”
And what about the companies’ combined portfolio?
Vauramo explained: “There are some overlaps, but in general, they go well together. Of course, this is a focus for the regulators as well. We need to do the antitrust filing in several countries and then we will know how much we can truly integrate the product lines. At this moment, we haven’t made any decisions.”
He added that it is still too soon to reveal details of the new branding as well.
“All we know is the company’s name will be Metso Outotec, and my view is that we have well-known products in both of our ranges. I don’t see renaming of products necessary,” he said. “Why should we change things that customers know well and appreciate?”
Indeed, there are a number of standout products or “category products” as Vauramo termed them during his presentation announcing the deal to the global mining media. He cited Metso’s Lokotrack line of mobile crushers and Outotec’s Courier analyzers as good examples.
In addition to these, the combined product portfolio will boast a unique end-to-end product and services offering in mineral processing, from crushing, screening, grinding and classification, through beneficiation, dewatering and tailings handling. This is the first time such a capability has been made available to the mining and minerals industries through one vendor.
“I think that’s the essence of this combination,” said Vauramo. “That Metso is strong in the dry processes, and then when water is added, that’s where Outotec’s strengths come into the picture. Then, of course, Outotec does have the metallurgical side, which we don’t have, and we, on the other hand, have the aggregates business, where Outotec is not at all involved.”
Total, Metso and Outotec spent €100 million (US$111.8 million) on R&D in 2018. This investment has already yielded some exciting products this year (see Outotec’s FP-S filter press and Metso’s VPX filter) and will no doubt continue to do so, but where will the R&D focus be going forward? Does Vauramo believe there are any products missing from the new lineup?
“There’s not really any traditional product areas that are missing,” he said. “But then if we take a future view, and we take the entire mineral processing value chain, which we now cover very well combined, that will give us the platform on which we can innovate and do R&D on automation, optimizing the system, remote monitoring …
“We will be able to introduce platforms that cover the entire process, rather than having a single piece of equipment with some sort of supervisory system, which, for every product, could potentially be different.
“So, we will be able to innovate on top of the process, and provide solutions that offer better outcomes, better recovery rates, lower energy consumption, better quality for our customers.”
Building on Services
Services, which have always been a key part of Metso’s offering for clients in the mining space, will continue to play a big role in the new company.
“When we look at the service footprint of the two companies, I don’t think there’s another organization in the industry that even compares with the presence and capabilities that we will have,” Vauramo said. “This presence will give us the possibility to provide better services to customers, and then on the other hand, grow our service business.”
Services already constitute a greater percentage of Metso’s sales than equipment, and the combined company’s sales are expected to comprise 52% services and 48% equipment. Vauramo is certain that this trend will continue to grow.
“Over the cycle, definitely, services will grow faster than equipment,” he said. “Momentarily, of course, in the upcycle, the equipment side tends to grow faster, while services continue at a steady rate. But we will see that 50%, 52%, growing toward 60% in years to come.
“We will have the entire process, which gives us the platform to do many things. But in addition to that, I think the service footprint combination is favored by customers, as well.”
For the time being, it is business as normal for both companies, but what changes can customers expect?
“Short term, they will see Metso focusing on the Metso business, and I’m not in a position to comment on Outotec’s side, but I believe that something similar will happen there, too,” Vauramo said. “Of course, integration will start as soon as this closes, and I’m sure that they [customers] will see a much more competitive Metso Outotec than the companies are individually today.
“It will be a company that can provide services anywhere in the world, regardless of where the equipment originates from, Outotec or Metso. And we will be bringing new and exciting solutions and technologies into the marketplace, once we are combined.”
Vauramo concluded the conversation neatly: “These are exciting times that we live in, and we do hear quite a lot of encouraging comments from customers, from personnel, from investors, on this. Everyone is of the opinion and view that this makes really a lot of sense in this industry.”