Alfa Laval AB’s share price up, acquires pump manufacturer Frank Mohn AS in a 2.2-billion-dollar deal

Alfa Laval AB made an official statement today, revealing that it reached an agreement to purchase the pump manufacturer Frank Mohn AS in a deal estimated to 13 billion Norwegian kroner (2.17 billion dollars). The company is making an attempt to strengthen its positions in the marine and offshore oil & gas markets.

Alfa Laval AB explained in its statement that the deal is structured as an all-cash acquisition, which will be financed by using already existing credit facilities and a bridge loan. This would lead to a net debt to earnings ratio to about 2.5. In addition, Alfa Laval AB also revealed that it expects to increase its earnings per share after finalizing the deal. The company is also striving to generate annual integration savings estimated to about 120 million kroner within a period of three years.

Mr. Lars Renstrom, the current Chief Executive Officer of Alfa Laval, said on a conference call, cited by Bloomberg: “The solid order backlog and stable historical operating margins over the business cycle give us financial comfort.” Mr. Renstrom also stated that he expects a “significant increase” in companys sales during 2014 and 2015.

Part of the statement of Alfa Laval ABs Chief Executive Officer was also cited by the Wall Street Journal: “The combination of Frank Mohn and Alfa Laval will provide a very attractive offering of products, systems and services and it will strengthen our leading position as a provider of critical systems for ships and offshore oil & gas production units.”

In addition, Mr. Renstrom also revealed that over the last few years Alfa Laval AB has focused on marine and offshore oil and gas markets as areas of growth in order to expand its services to industrial, food and medical clients.

The Nordic engineering companies have been striving to increase their profit margins in a variety of sectors, which would make them more attractive for overseas companies. As reported by the Wall Street Journal, earlier in April Weir Group Plc., based in Scotland, offered a deal to Metso Oyj. The offer, however, was not received gladly by Metso Oyj shareholders.

According to the Financial Times, shares of Alfa Laval AB gained 3.38%, while companys one-year return rate was 25.67%. The 20 analysts offering 12-month price targets for Alfa Laval AB have a median target of 165.00, with a high estimate of 195.00 and a low estimate of 125.00. The median estimate represents a -7.09% drop from the last price of 177.60.