By: Michael Lauzon
September 25, 2012
APPLE VALLEY, MINN. (Updated Sept. 25, 1:15 p.m. ET) — A proposed merger of two plastic pipe majors’ infrastructure businesses will have negligible impact on their North American operations, according to an official.
Uponor Corp. and KWH Group Ltd. plan to form a joint venture that combines their global infrastructure pipe systems businesses, which have been hit by a slowdown as a result of the recession.
The venture, Uponor Infra Oy, will focus primarily on northern Europe. Both Uponor and KWH are based in Finland, in Vantaa and Vaasa, respectively.
“There is no plan to integrate the [North American] businesses,” said Bill Gray, North American President for Uponor Inc. Uponor’s North American production operation in Apple Valley, Minn., produces crosslinked polyethylene pipe for plumbing, building and construction markets. KWH’s North American production operations are in Canada and since they focus on high density polyethylene pressure pipe for intrastructure and related markets, are part of the planned merger.
The new Finland-based company will be jointly owned by Uponor (55.3 percent) and KWH Group (44.7 percent). Uponor spokesman Tarmo Anttila said in a telephone interview that although Uponor’s contribution to the joint venture is smaller than KWH’s, it will be the major partner by offsetting the difference through assuming some debt from KWH Group.
“No money per se will be involved in the transaction,” Anttila said from Vantaa.
Uponor’s infrastructure solutions business focuses on storm water and sewer systems. The business generated 2011 earnings before interest, taxes, depreciation and amortization (EBITDA) of 3.8 million euros ($4.9 million) and sales of 150 million euros ($194 million). The operations employ 516 and include two factories in Finland and one in Sweden. Uponor exited the infrastructure pipe business outside the Nordic countries in the early 2000s, Anttila explained. Until then Uponor had infrastructure pipe plants in the United States, Argentina and central and southern Europe.
Uponor, traded on the Helsinki stock exchange, recorded 2011 sales of Euros806.4 million.Infrastructure pipe sales represented 18 percent of total sales. Building solutions mainly comprising PEX pipe are its biggest market and target home and non-residential radiant heating and cooling, and plumbing. European Building Solutions accounted for 67 percent of 2011 sales and the segment in North America represented 15 percent of total sales. On a geographic basis, Germany is Uponor’s largest single market overall, absorbing 18.7 percent of sales. The United States takes 11 percent of sales and Canada a bit more than a third of that level.
In a separate transaction, Uponor will acquire KWH’s small PEX pipe business in Finland. Earlier this year Uponor sold a non-core PEX pipe business in Germany that supplied original equipment manufacturers.
KWH Pipe generated EBITDA of 7.4 million euros ($9.6 million) and sales of 234 million euros ($303 million). Operations employ 1,238, and include three plants in Finland, two each in Denmark and Canada and four other factories in Sweden, Poland, the Czech Republic and Thailand .It makes pressure pipe for industrial, infrastructure, building applications, environmental products, pre-insulated pipe systems and special machinery and production technology.
KWH Group, majority owned by the H"glund family, had total sales in 2011 of 537.4 million euros and 2,691 employees. KWH Pipe accounted for 44 percent of sales. Other KWH Group businesses include abrasives, logistics such as cold storage and sea port operations, and for a combined 5 percent of sales, food packaging films and HVAC products, especially sink traps.
The deal is subject to regulatory approvals, which Anttila said could take one to four months.
The companies said the JV is aimed to improving efficiency and profitability, and reflects the mutual interest of both companies to stay in the business.
“The industry landscape in this business segment in Finland and other Nordic markets has changed remarkably over the past several years, due to international and specialized domestic players having entered the market,” Uponor President and CEO Jyri Luomakoski said in a news release. “At the same time demand has suffered as a result of a prolonged global crisis.”
KWH Group President and CEO Peter H"glund added: “Uponor and KWH wanted to contribute to the challenging situation at hand together, and will establish a new structure that aims at a better capacity utilization and a sustainable development of the infrastructure business in the future.”
Uponor spokesman Anttila said it was too early to speculate about plant closures and consolidations between the two partners.
KWH Pipe (Canada) Ltd. had estimated sales of about $110 million in 2011 according to Plastics News’ recent pipe, profile and tubing survey. It runs infrastructure pipe plants in Huntsville, Ontario, and Saskatoon, Saskatchewan. KWH Group claims in its 2011 annual report that those operations are the biggest producer of HDPE pipe in Canada and are especially strong in large-diameter pipe such as that used for storm water retention and highway culvert rehabilitation.
The Canadian business often finds it difficult to export to the United States because of US policies favoring domestic pipe suppliers. However, North America’s market for HDPE pressure pipe has been relatively strong, largely due to development of shale deposits of oil and gas, KWH Group said in its 2011 annual report.