Spin-off watch: SCA / Essity
One of the biggest and highest profile Spin-offs in Europe this year is clearly the separation of Swedish SCA (“Svenka Cellulosa Aktiebolget”) into an “integrated forest product group” which keeps the SCA name and a consumer product entity named “Essity”.
SCA communicated this already more than two years ago and starting this week, June 12th the spin-off is actually executed, with every SCA shareholder receiving one Essity share per SCA share.
Interestingly the spin-off works as follows:
- In step one, as of June 12th, the old SCA stock trades “ex right” with regard to the spin-off company Essity
- Only on June 15th, Essity itself will start trading
In principal, the new consumer company clearly looks as the more attractive part of the old SCA in comparison with the capital-intensive forest, pulp and paper part.
I haven’t seen this structure before and I am not sure why they do this with a 4 day delay.
As we can see in the chart, the “old” SCA did pretty well on the first day, at least based on the opening price of 64,95 SEK per A-Share as we can see:
As we can see, volatility within the first trading day of the “SCA forest” was significant. Compared to the last price on Friday, June 9th (around 302 SEK), the stock lost around 240 SEK in the opining but climbed almost 20% until mid day and then settled with a plus of more than 10%.
It will be now interesting to see how Essity will do on Friday. It should start trading at 240 but we will see where it actually will trade.
Is the “ugly duck” SCA interesting ?
As the consumer business is faster growing and less capital-intensive, in theory, SCA forest should be the ugly duck.
However at around 72 SEK for the SCA forest share (market cap 48 bn, net debt 5 bn) and the projected 3,3 bn SEK EBITDA for the forest group, SCA forest trades at around 14,5 x EV/EBITDA.
Compared to peer company Holmen which trades at around 11,6 x EV/EBITDA, SCA forest doesn’t look cheap. Maybe it is better quality (the company owns for instance 6% of Swedish land), but it doesn’t look mispriced and doesn’t justify a much deeper analysis in my opinion for the time being.
So for me, SCA forest doesn’t look very interesting at the moment. I will keep an eye on it going forward but it seems that this time the spin-off didn’t result in a buying opportunity for the assumed “ugly duck” part of the company.