Danske Capital Management Some thoughts on cross-border flows in the Nordic area and how should IR professionals tackle it? By Peter Preisler Senior Vice

Danske Capital Management

Some thoughts on cross-border flows in the Nordic area and how should IR

professionals tackle it?

By Peter Preisler

Senior Vice President

29 May 2000


Agenda

• Trends in Nordic Merger and Acquisitions activities• Flows in the Nordic stock market• The role of IR professionals


Nordic M&A activity driven by common economic rationale

Mature industries have come far in the consolidation of the industry• Relatively high concentration of companies speak against M&A boom

among big caps, more likely to appear in mid- and small-cap segment of the market

• Low valuations make acquisition strategies difficult, which means that key for M&A activity will be cash flow, and bids are more likely to come in cash

M&A among financials driven by scale economies• As Asset management is becoming a primary source for revenue generation among the banks, scale economies can be achieved when

with increased geographical distribution • Internet banking adds a new distribution channel, and a potential

for increasing revenue streams through value added services. Again, the potential for scale economies is obvious


Nordic M&A activity driven by common economic rationale

Nordic IT/Technology - watch out for a looming M&A craze• Nordic IT/Technology market extremely fragmented: Fight for market

shares drive consolidation• High valuations make not only cross border Nordic M&A activity

an option, but recent history shows focus on international growth • Significant scale economies in many areas such as ERP and software


Trends in Nordic M&A’s - less M&A activity in large-cap “old” economy

• 13 Nordic Pulp & Paper stocks with a total sector market cap EUR 31.9bn

• Average market cap EUR 2.5bn • Sector has already gone through the Nordic consolidation phase• Concentration is thus relatively high. The three largest companies

in the Nordic universe (Stora Enso, UPM-Kymmene and SCA) make up 72% of the sector’s market cap

• Further M&A activity likely to be on the margin as part of strategies where non-core business are being divested

• Low valuation holds back activity during through years when cash-flow typically is tighter

• Activity in 2000 (on the margin) as a result of positive earnings cycle, with free cash flow at hand


Concentration relatively high - the case for pulp & paper

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Stora Enso UPM-Kymmene SCA Rest of Nordic P&P

Three largest Nordic Pulp & Paper companies and rest of Nordic universe, market cap

EURm


Trends in Nordic M&A’s - continued M&A cross-border activity in banks

• 13 “large” Financial stocks with a total sector market cap EUR 63.8bn

• Average market cap EUR 4.9bn• Sector is in the middle of a period of Nordic cross-border M&A in

order to seek out scale economies in asset management and internet banking

• Low concentration for “old” economy large caps. The 10 smallest banks make up less than 50% of the sector’s market cap (48%)

• Three largest banks MeritaNordbanken (NBH), Svenska Handelsbanken and SEB should be the drivers behind consolidation

• Valuations low, but earnings are strong and stable throughout the Nordic bank universe, which gives a potential to expand geographically


Even with high concentration - many banks are left with few options but to

seek partner

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Meri

taNor

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ken

Svens

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SEB

Swedba

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Union

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Nordic banks, market cap

EURm


Trends in Nordic M&A’s - the case for continued IT/Tech. consolidation

• 56 “large” Nordic IT/Technology stocks with a total sector market cap EUR 39.4bn

• Average market cap EUR 703m• Apparent fragmentation! The three largest companies in the

Nordic universe (TietoEnator, WM-Data and Framfab) make up 25% of the sector’s market cap

• Acquisitions paid for in new shares made more difficult recently as relative valuations shift in favour of continental Europeans

• With Nordic IT/Technology edge, valuation could easily swing back in favour of the Nordics setting off the next round of consolidation

• Recent history shows that M&A activity is not limited to the Nordic region - rapid international presence driver for M&A outside Nordic


Too fragmented to capture significant scale economies - M&A activity to

continue

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10,00012,00014,00016,00018,00020,000

TietoE

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WM

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10 largest Nordic IT/Technology & Rest of technology universe, market cap

EURm


Recent trend support hypothesis for Technology and Financials

0

20

40

60

80

100

120

140

160

Teleco

m/Tec

hnolo

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Financ

ials

Capita

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Basic

Mate

rials

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mer

Shippin

g/tran

spor

t

Prope

rty/co

nstru

ction

Health

care

Oil & O

il Serv

ices

Number of Nordic transactions, 12 months


Large deals in traditional sectors

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Financ

ials

Basic

Mate

rials

Capita

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Oil & O

il Serv

ices

Teleco

m/Tec

hnolo

gy

Shippin

g/tran

spor

t

Consu

mer

Health

care

Prope

rty/co

nstru

ction

Mkt value, USDm


Flows in the Nordic stock market

• Three years ago investors used a country approach in the whole Europe, and in some degree the Nordic area was only one country

• Today investors use a sector approach in the whole Europe (including the Nordic countries)

• The different sector mix in the Nordic countries make it even more important to use a sector approach in the whole Europe

- Norway: Very cyclical (Oil & Oil Service, Shipping and Basic Material)

- Sweden: Financial and growth companies (Telecom Equipment, Technology)

- Finland: Some very cyclical companies and some very large growth companies (Telecom Equipment, Telecom Operators and Technology)

- Denmark: Defensive: Financials and Consumer companies


Flows in the Nordic stock market

• Regional sector flows and business sector flows increases significant, local regions (i.e. Nordic area) flow also increases but at a lower pace


The role of IR professionals

The vital link between the company and its investors

• Rapid changes in the competitive environment has increased this need dramatically

• The IR function must address threats and opportunities and how they plan to deal with them on a company specific level

• An optimal dialogue between the company and its investors leads to a better pricing in the stock market


The role of IR professionals

Global investment trends and their use

• The IR professionals must capture interesting areas of development within the company and effectively communicate these areas of competitive advantages to investors

• The link between the new and the old economy

• The internet challenge


The IR’s role to unlock the treasures of the company

The use of investment trends

• To attract investors by giving sensible examples from the company’s use of technology from the new economy

• I.e. web enabling projects

The cost saving potential from the use of new technology• Communicate strategy plans and give investors incentive to

invest in your strategy plans and give investors incentive to invest in your strategic goals

• Show potential and competitive advantages from the merger between the new and the old economy. Like ABB or SKF


The IR’s role to communicate between the company and its investors

A fruitful dialogue between stock market and company• Identification of important industry trends from market

analysts• Discovery of potential M/A possibilities• Significant inflow of information to the different business

areas within the company

The IR professionals hold the key to specific company information• Key personnel must be introduced to investors• Important developments must be communicated• The investors understanding of the company must be

addressed at specific occasions like capital market days


The IR’s role to communicate between the company and its investors

The stock market and investors is an important source of market information

• The IR must feed back information and market reactions to the company in order to improve the future communication

• Understanding of the stock market’s logic will lead to better communication and higher stock prices

Documents

Danske Capital Management Some thoughts on cross-border flows in the Nordic area and how should IR professionals tackle it? By Peter Preisler Senior Vice