Reuters reported that Swedish specialty steel and tool maker Sandvik would buy all remaining shares of its subsidiary Seco Tools for SEK 6.2 billion as it looks for economies of scale in the face of growing competition and a global slowdown.

Sandvik was hit hard by the downturn in 2009 and said in its third quarter results it was bracing again for slower economic growth. The firm had already announced a major rejig of its operations aimed at reducing cost and boost efficiency.

Mr Olof Faxander CEO of Sandvik said that full ownership of Seco Tools, which supplies cutting tools to the aerospace, oil and gas, medical and automotive sectors, will bring economies of scale and lead to faster product development.

He added that "Through the years there have been quite a lot of consolidation in the world around us, and there will for sure be new competitors in developing countries too, so I therefore think now is a logical time to consider buying this minority."

Sandvik, which already controls 60.4% of the shares and 89.3% of the votes in Seco Tools, said that it expects cost synergies of SEK 300 million with the full effect coming in 2014. Mr Faxander said there were opportunities for revenue synergies as well.

Mr Michael Hagmann, an analyst at Nomura Securities, said that "The Seco tools and Sandvik tooling businesses are so similar that you should be able to realize synergies across the whole value chain. So from that perspective it makes a lot of sense. But it's a relatively generous price. If you realize synergies of 300 million, in our calculation it still has a small dilutive impact on the fair value of Sandvik."

(Sourced from www.reuters.com)