Statement of the Board of Directors of Neles Corporation regarding the recommended voluntary public cash tender offer by Alfa Laval AB (publ)

Neles Corporation Stock exchange release 12 August 2020 at 9:30 (EEST)


Statement of the Board of Directors of Neles Corporation regarding the recommended voluntary public cash tender offer by Alfa Laval AB (publ)

THIS STOCK EXCHANGE RELEASE MAY NOT BE RELEASED, PUBLISHED OR OTHERWISE DISTRIBUTED, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE’S REPUBLIC OF CHINA, JAPAN, NEW ZEALAND, SOUTH AFRICA, OR ANY OTHER JURISDICTION IN WHICH THE TENDER OFFER WOULD BE PROHIBITED BY APPLICABLE LAW. FOR FURTHER INFORMATION, PLEASE SEE SECTION ENTITLED “IMPORTANT INFORMATION” BELOW.

On 13 July 2020, Alfa Laval AB (publ) (the “Offeror” or “Alfa Laval”) announced that it will make a recommended voluntary public cash tender offer to acquire all of the issued and outstanding shares in Neles Corporation (“Neles” or the “Company”) that are not held by Neles or any of its subsidiaries (the “Shares”) (the “Tender Offer”).

The Board of Directors of Neles (the “Board of Directors”) has resolved on issuing the below statement regarding the Tender Offer as required by Chapter 11, Section 13, of the Finnish Securities Markets Act (746/2012, as amended).

Tender Offer in brief

Neles and the Offeror have on 13 July 2020 entered into a combination agreement (the “Combination Agreement”) setting out, among other things, the main terms and conditions pursuant to which the Tender Offer will be made by the Offeror.

The Tender Offer will be made in accordance with the terms and conditions of a tender offer document to be approved by the Finnish Financial Supervisory Authority, expected to be published by the Offeror on or about 13 August 2020 (the “Tender Offer Document”).

The offer price is EUR 11.50 in cash for each Share in Neles validly tendered into the Tender Offer (the “Offer Price”).

The Offer Price represents a premium of approximately:

  • 32.8 percent compared to the closing price of the Neles Share (EUR 8.658) on Nasdaq Helsinki Ltd (“Nasdaq Helsinki”) on 10 July 2020, the last trading day before the announcement of the Tender Offer;
  • 35.8 percent compared to the volume-weighted average trading price of the Neles Share on Nasdaq Helsinki during the period from 1 July 2020, the first trading day after the date of registration of the partial demerger of Metso Corporation (“Metso”) and the merger of Metso’s Minerals Business with Outotec Corporation (“Outotec”) (the "Demerger"), up until and including 10 July 2020, the last trading day before the announcement of the Tender Offer; and
  • 29.6 percent compared to the volume-weighted average trading price of the Neles Share on Nasdaq Helsinki during the period from 1 July 2020, the first trading day after the date of registration of the Demerger, up until and including 10 July 2020, the last trading day before the announcement of the Tender Offer, and excluding the impact of Valmet Corporation's (“Valmet”) acquisition of Shares representing 14.88 percent of all Shares in Neles from Solidium Oy (“Solidium”), which was announced by Valmet on 17 June 2020 and completed on 1 July 2020.

The Offer Price is subject to the terms and conditions of the Tender Offer.

The Tender Offer was announced by the Offeror pursuant to Chapter 11, Section 9, of the Finnish Securities Markets Act on 13 July 2020.

Cevian Capital Partners Limited ("Cevian Capital"), one of the major shareholders of Neles who holds approximately 10.9 percent of the Shares, has irrevocably undertaken to accept the Tender Offer subject to certain customary conditions. Among these conditions are Cevian Capital's right to terminate the undertaking under certain conditions, including if a competing tender offer is announced, with a consideration that exceeds the Offer Price by at least five percent and provided that Alfa Laval does not increase the Offer Price to match such competing consideration.

The offer period under the Tender Offer is expected to commence on or about 13 August 2020 and is expected to expire on or about 22 October 2020, and thus, to run for approximately 10 weeks, subject to any extension of the offer period by the Offeror in accordance with the terms and conditions of the Tender Offer.

The obligation of the Offeror to complete the Tender Offer will be conditional upon the satisfaction or, if permitted by applicable laws and regulations, waiver by the Offeror of certain customary conditions, including, among others, the Offeror having gained control of more than two-thirds (2/3) of the issued and outstanding Shares and voting rights in Neles. The completion of the Tender Offer is not conditional upon the availability of financing.

Should Alfa Laval obtain less than 90% but more than two-thirds (2/3) of the issued and outstanding Shares and votes in Neles, Alfa Laval has stated that it would assess alternatives to acquire the remaining Shares in Neles over time, and it is possible that Neles could become subject to certain corporate transactions, including for example purchases of further Shares in Neles after completion of the Tender Offer, or a statutory cross-border merger into Alfa Laval. Alfa Laval has not taken any decisions on the timeline of any such possible transactions, or on whether any such transactions would be undertaken at all.

Alfa Laval have confirmed that, at the time of the publication of this announcement, neither the Offeror nor any party acting in concert with it as referred to in Chapter 11, section 5 of the Finnish Securities Markets Act holds any Shares or voting rights in Neles.

The detailed terms and conditions of the Tender Offer as well as further information on the Tender Offer will be included in the Tender Offer Document prepared by the Offeror.

Background of the statement

Pursuant to the Finnish Securities Market Act, the Board of Directors has an obligation to prepare a public statement regarding the Tender Offer. The statement shall include a well-founded assessment of the Tender Offer from the perspective of Neles and its shareholders as well as on the strategic plans presented by the Offeror in the Tender Offer Document and their likely effects on the operations of, and employment at Neles.

For the purposes of issuing this statement, the Offeror has submitted to the Board of Directors a draft version of the Tender Offer Document in the form in which the Offeror has filed it with the Finnish Financial Supervisory Authority for approval on 5 August 2020.

In preparing this statement, the Board of Directors has relied on the information that the Offeror has provided in the draft Tender Offer Document and has not independently verified the information included therein. Accordingly, the Board of Directors’ assessments of the consequences of the Tender Offer on Neles’ operations and employees should not be treated as conclusive.

Assessment of the strategic plans presented by the Offeror in the Tender Offer Document and their likely effects on the operations of, and employment at, Neles

Information given by the Offeror in the Tender Offer Document

The Board of Directors has assessed the Offeror’s strategic plans based on the statements made in Neles’ and the Offeror’s announcement regarding the Tender Offer published on 13 July 2020 and the draft Tender Offer Document.

According to the draft Tender Offer Document, Alfa Laval is a global provider of products and solutions based on its key technologies of heat transfer, separation and fluid handling. The company plays a vital role in areas that are crucial for society, such as energy efficiency, environmental protection and food production. Alfa Laval’s products are used in the manufacturing of food, chemicals, pharmaceuticals, starch, sugar and ethanol as well as in the treatment of wastewater; and in the engineering and refinery sectors and mining, nuclear power and marine industries as well as in creating a comfortable indoor climate. Alfa Laval’s worldwide organization helps customers in nearly 100 countries to optimize their processes. The company has 42 major production units (22 in Europe, 10 in Asia, 8 in the US and 2 in Latin America) and over 17,000 employees, the majority of whom are located in Sweden, Denmark, India, China, the US and France.

According to the draft Tender Offer Document, Alfa Laval has identified the industrial flow control market as a key growth area. The company has historically had a strong presence in the food and water business as well as in the marine and offshore business. The transaction enables Alfa Laval to considerably strengthen its presence in the large industrial flow control space where the company currently offers mainly energy efficiency solutions.

According to the draft Tender Offer Document, Alfa Laval considers Neles an attractive platform for continued growth. Alfa Laval concludes that the companies operate in parallel end-markets with different product specifications in the valve business and very little overlap between their current operations. However, Alfa Laval sees much in common between the industrial end-markets and the separate hygienic end-markets. In addition, Alfa Laval is highly engaged in the same industrial end-markets as Neles with advanced solutions for heat transfer and separation technology. According to the draft Tender Offer Document, the strategic fit is further enhanced by both companies having an advanced technology profile. Moreover, there are several areas where Alfa Laval believes that being part of the Alfa Laval Group can make a significant contribution to the future development of Neles, with certain strategic opportunities including:

  • Leveraging Alfa Laval’s well invested service network infrastructure of around 100 service centers globally.
  • Leveraging Alfa Laval’s highly efficient, automated warehouse presence in North America, Europe, and Asia in Neles’ global parts distribution. The set-up is well suited to Neles’ product range and can provide a world-class solution in the industrial flow market.
  • Acquisition growth: Alfa Laval has a long history of successful M&A transactions and the financial strength to support a meaningful acquisition program in the industrial flow market.

According to the draft Tender Offer Document, Neles and Alfa Laval would create a larger and stronger global player in the flow control market. As a combined company, Neles would become an integral part of Alfa Laval’s organization structure, while largely retaining its operational structure and strong identity within the Alfa Laval network. Further, according to the draft Tender Offer Document, the transaction is expected to result in significant benefits for stakeholders, including creation of shareholder value for both Neles and Alfa Laval shareholders. Alfa Laval believes that there is a strong strategic and cultural fit in the transaction.

According to the draft Tender Offer Document, following completion of the Tender Offer, the operations of Neles will continue as a part of the Alfa Laval Group, and the completion of the Tender Offer is not expected to have any major immediate effects on Neles’ operations or assets, the position of its management or employees, or its business locations. However, as is customary, Alfa Laval intends to change the composition of the Board of Directors as soon as practically possible after the completion of the Tender Offer to reflect the new ownership structure of Neles.

The Board of Directors’ assessment

The Board of Directors considers that the information on the strategic plans of the Offeror concerning Neles included in the draft Tender Offer Document is given, as is typical for such a document, on a general level. Based on the Offeror’s statements, the Board of Directors believes that the strategic plans of the Offeror pursuant to the Tender Offer would not have any major immediate effects on Neles’ operations or assets, the position of its management or employees, or its business locations.

Furthermore, the Board of Directors notes the Offeror’s commitment to the strategy and industrial plan of Neles, its strategic intent to offer a powerful platform to enable Neles' further growth and the lack of overlap with the current activities of the Offeror. Consistent with this view, the Offeror has not provided synergy estimates in their communications to the Board of Directors or in the Offer Document.

Although the strategic plans and intentions of Alfa Laval have been provided only on a general level, the Board of Directors believes that the completion of the Tender Offer would not have any immediate material effects on the employment of Neles’ current employees. The Board of Directors notes, however, that the Tender Offer is likely to have an effect on employment in Neles with regard to duplicative functions. The Board of Directors believes that the final and long-term impact of the integration can be assessed only after the completion of the Tender Offer.

On the date of this statement, the Board of Directors has not received from Neles’ employees any formal statements as to the effects of the Tender Offer on the employment at Neles.

Assessment of the Tender Offer from the perspective of Neles and its shareholders

Introduction

When evaluating the executed Combination Agreement and the Tender Offer, analyzing alternative opportunities available to Neles and concluding this statement, the Board of Directors has considered several factors, such as Neles’ recent financial performance, its financial condition, current trading position and future prospects, the intrinsic value of Neles Shares and the performance of the trading price of the Neles Shares since 1 July 2020.

The Board of Directors’ assessment of continuing the business operations of Neles as an independent provider of mission-critical flow control solutions and services has been based on reasonable forward-looking estimates. These include various uncertainties, whereas the Offer Price offered by the Offeror in the Tender Offer and the premium included therein is not subject to any uncertainty other than the fulfilment of the conditions to completion of the Tender Offer and the completion of the Tender Offer.

In order to support its assessment of the Tender Offer, the Board of Directors has received a fairness opinion, dated 13 July 2020, concerning the fairness of the Tender Offer (the “Fairness Opinion”) from Morgan Stanley & Co. International plc (“Morgan Stanley”) to the effect that the consideration to be offered to the shareholders is fair from a financial point of view. The Fairness Opinion is attached as Appendix 1 to this statement.

Neles as an independent listed company

Neles is one of the leading providers of mission-critical flow control solutions and services for process industries and it started trading as an independent company on 1 July 2020 following the Demerger. Before the Demerger, the operations of Neles formed a separate reporting segment of Metso Group for several years, providing Metso's shareholders and other market participants an opportunity to familiarize themselves with its operations and performance. In preparation for operating as an independent listed company, Neles management also engaged in a thorough communication effort towards the market to engage with both existing Metso shareholders as of that time, as well as potential new shareholders in the standalone Neles. This included a thorough presentation of Neles, its strategy and its prospects during the capital markets day held on 27 May 2020. Despite the relatively short trading history of Neles as a standalone company on Nasdaq Helsinki, it is the Board of Directors’ view that the market benefits from a good level of information on Neles and on its future prospects.

Between the initial trading of Neles Shares on 1 July 2020 and the announcement of the Tender Offer on 13 July 2020, approximately 17.1 percent of the total Shares outstanding have traded between a price of EUR 8.26 per Share and EUR 9.28 per Share, excluding the impact of the acquisition of Shares by Valmet from Solidium.

This initial trading performance appears to be consistent with the implied share price for the Shares based on Outotec and Metso’s trading ahead of the closing of the Demerger, as well as valuation based on peers trading multiples and broker target prices. It is therefore the Board of Directors’ assessment that the prevailing share price of Neles since 1 July 2020 and until the announcement of the Tender Offer is a relevant reference point against which the Offer Price should be compared to, despite the short standalone trading history of Neles Shares.

Valmet’s acquisition of Shares in Neles

Valmet, a Finnish company listed on Nasdaq Helsinki in the business of developing and supplying technologies, automation systems and services for the pulp, paper and energy industries, announced on 17 June 2020 that it had agreed to acquire 22.4 million Shares in Neles from Solidium at a price of EUR 8.00 per Share, representing 14.88 percent of Neles’ Shares and votes. On 14 July 2020, Valmet increased further its direct shareholding in Neles to 15.50 percent of Neles’ Shares and votes and, based on Neles' shareholder register as of 10 August 2020, Valmet's direct shareholding in Neles amounts to 18.84 percent. The Board has especially considered the fact that Valmet publicly confirmed that their target is to increase their ownership when Neles’ Share price supports additional purchases and that Valmet’s goal is to have an active long-term role in the development of Neles. The Board has also considered Valmet's press release of 13 July 2020 in which Valmet states that Valmet does not consider the Tender Offer to be beneficial for Neles and that Valmet will continue as an active shareholder of Neles. The Board notes, however, that Valmet has not presented strategic alternatives or transactions that would enable shareholder value enhancement to the benefit of all shareholders of Neles at the same level of value and certainty as the Tender Offer.

Furthermore, on 2 July 2020 the Board of Directors received a shareholder's request from Valmet in accordance with Chapter 5 Section 4 of the Finnish Companies Act (624/2006, as amended) to convene an Extraordinary General Meeting to resolve that the Board of Directors shall have eight members, and that in addition to incumbent members of the Board of Directors, Jukka Tiitinen, currently Valmet's Area President, Asia Pacific, be elected as a member of the Board of Directors. In line with Valmet's request, Neles has convened the said Extraordinary General Meeting to be held on 29 October 2020.

The Board of Directors notes that the current shareholding of Valmet in Neles enables it to exercise certain minority shareholder rights without any support from other shareholders, such as the right to convene and Extraordinary General Meeting and demand a minority dividend. In addition, the Board of Directors has considered that Valmet could block minority squeeze-out proceedings under the Finnish Companies Act in the context of a tender offer and that Valmet, as an industrial company, is seeking influence over the direction of the Company through the election of a member of the Board of Directors. Also, as mentioned previously, the Board of Directors notes Valmet’s stated intention to further increase its shareholding over time which can lead to greater influence and control over Neles.

Approach by Alfa Laval and assessment of the Offer Price and the Tender Offer

Following the Demerger, the Offeror approached the Board of Directors with an initial tender offer proposal supported by an irrevocable commitment by Cevian Capital, subject to certain customary conditions, to tender all of its Shares, representing 10.9 percent of all Shares in the Company.

Following various discussions, the Offeror will launch the Tender Offer at the price of EUR 11.50 per Share. With regard to the Offer Price, the Board of Directors notes, amongst other facts and analyses, the following:

  • The Offer Price implies a premium of approximately 29.6 percent compared to the volume-weighted average trading price of the Neles’ share on Nasdaq Helsinki during the period from 1 July 2020, the first trading day after the date of registration of the Demerger, up until and including 10 July 2020, the last trading day prior to the announcement of the Tender Offer, and excluding the impact of Valmet’s acquisition of Shares representing 14.88 percent of all Shares in Neles from Solidium, which was announced by Valmet on 17 June 2020 and completed on 1 July 2020;
  • Based on customary financial metrics, the Offer Price implies transaction multiples which the Board of Directors views as attractive when compared to the trading multiples of comparable listed companies and precedent transactions in the same sector as that in which Neles operates; and
  • From the standpoint of Neles' intrinsic value, the Board of Directors has carefully assessed the Offer Price and has concluded that the Offer Price is reflective of the value of the Company in the medium to long term, including when considering the potential execution risks related to the realization of Neles’ strategy.

The Board of Directors has on 13 July 2020 also received a Fairness Opinion from Morgan Stanley, indicating that the consideration to be offered to the shareholders of Neles is fair from a financial point of view.

When it comes to the certainty of the Tender Offer the Board of Directors has, in particular, carefully assessed the following factors:

  • The Offer Price will be paid fully in cash and the Offeror has secured financing for the payment of the Offer Price as required under applicable laws and regulations and the recommendation on procedures to be followed in Finnish public tender offers issued by the Finnish Securities Market Association (the "Helsinki Takeover Code");
  • The Offeror has informed Neles that it believes that necessary regulatory approvals for the Tender Offer may be obtained prior to the expiry of the initial offer period;
  • The Tender Offer is supported by Neles’ second largest shareholder Cevian Capital with an irrevocable undertaking to tender its Shares subject to certain customary conditions; and
  • The completion of the Tender Offer is conditional on the Offeror reaching an acceptance threshold of only two-thirds (2/3) of the Shares, thus increasing the execution certainty of the Tender Offer for those shareholders who will choose to tender their Shares.

The Board of Directors’ assessment

The Board of Directors is confident in Neles’ standalone strategy and prospects, which have been laid out by the management of the Company during its capital markets day on 27 May 2020. However, following the acquisition of Shares representing 18.84 percent of all Shares in Neles by Valmet, there is no guarantee that over time Neles will be able to continue operating as a fully independent company, particularly given Valmet’s stated intention to seek a seat on the Board of Directors and to increase its shareholding over time. In addition, further concentration of ownership could lead to weaker liquidity in the Shares and reduce the interest of potential acquirers towards Neles. This could, in turn, result in there being fewer strategic alternatives available to the Board of Directors to enhance the value of the business operations and the value of the Shares for the benefit of all shareholders of Neles.

While the tender rate conditionality at two-thirds (2/3) of the Shares of the Company increases the execution certainty of the Tender Offer, the Board of Directors has also considered that if the Tender Offer is successful, Alfa Laval could exercise significant control over Neles by being able to make resolutions at the General Meetings of shareholders, which require a qualified majority of two-thirds (2/3) of the Shares represented and votes cast at a General Meeting. These include, among others the right to resolve upon a directed share issue, an issue of convertible instruments, option rights or other special rights entitling the holder to shares, the right to resolve upon amendments to Neles' Articles of Association, as well as the right to resolve upon a merger or demerger of Neles. In addition, the fact that Alfa Laval would hold at least two-thirds (2/3) of all Shares in Neles after the completion of the Tender Offer would also be likely to result in reduced liquidity for the Neles Shares, making it more difficult for remaining shareholders to sell their Shares.

Neles’ second largest shareholder Cevian Capital has provided to the Offeror an irrevocable undertaking to tender its Shares subject to customary conditions. Such undertaking was provided to Alfa Laval before it approached the Board of Directors with an initial tender offer proposal.

In this context, and as noted above, the Tender Offer offers significant value upfront in cash and the Board of Directors has evaluated the Offer Price against a range of valuation methodologies. Given the relatively short trading history of Neles as a standalone company since 1 July 2020, the Board of Directors has in particular analyzed in detail the intrinsic value of the Company under a range of scenarios as well as evaluated the Offer Price against a range of valuation methodologies, on the basis of which it has concluded that the Offer Price is reflective of the value of the Company in the medium to long term, including when considering the potential execution risks related to the realization of Neles’ strategy and other possible strategic alternatives. The Board of Directors has also taken into account the other terms and conditions of the Tender Offer as well as the Fairness Opinion provided by Morgan Stanley.

The Board of Directors has further taken into account its obligation under the Helsinki Takeover Code to engage with any third party with an inbound interest for Neles in line with the Board's fiduciary duties if this would be in the best interest of the Company's shareholders.

The Board of Directors also reserves, in accordance with the terms of the Combination Agreement, the right to withdraw, modify, change or supplement its statement in the event of a material change in circumstances, as set out in the Finnish Securities Markets Act and the Helsinki Takeover Code.

Based on its overall assessment, taking into consideration the factors described above, among other matters, and in the light of current circumstances, the Board of Directors has concluded that it recommends that the Company's shareholders accept the Tender Offer.

Financing of the Tender Offer

As required under applicable laws, Alfa Laval has, and will have at the completion of the Tender Offer, access to debt and equity funding in sufficient amounts to finance the payment of the aggregate Offer Price for all of the issued and outstanding Shares in Neles in connection with the Tender Offer (including in any mandatory redemption proceedings in accordance with the Finnish Companies Act). The Tender Offer will be financed through a combination of Alfa Laval’s own funds and debt facilities from Skandinaviska Enskilda Banken AB (publ) (“SEB”). Alfa Laval has secured fully committed debt financing from SEB on a customary certain funds basis, and the availability of the debt financing is subject only to the completion of the Tender Offer and certain conditions that are customary for a certain funds financing arrangement of this kind.

The completion of the Tender Offer is not conditional upon availability of financing.

Recommendation of the Board of Directors

The Board of Directors has carefully assessed the Tender Offer and its terms and conditions based on the draft Tender Offer Document provided by the Offeror, the Fairness Opinion, and other available information.

Based on the foregoing, the Board of Directors considers that the Tender Offer and the amount of the Offer Price are, under the prevailing circumstances, fair to the shareholders of Neles.

Given the above-mentioned viewpoints, the members of the Board of Directors who participated in the decision-making unanimously recommend that the shareholders of Neles accept the Tender Offer.

Six out of seven members of the Board of Directors have participated in the decision-making concerning this statement. Board member Niko Pakalén did not participate in the decision. Niko Pakalén has considered himself to be dependent of a major shareholder, Cevian Capital, which has given an undertaking, subject to certain customary conditions, to accept the Tender Offer. For this reason, he has made a decision not to participate in the decision-making concerning this statement.

Other matters

The Board of Directors notes that the transaction may, as is common in such processes, involve unforeseeable risks. The discussion below presents assessments of certain aspects which the Board of Directors considers relevant for the shareholders' decision whether to accept or not to accept the Tender Offer, although they may not be an exhaustive description of all relevant considerations. The below discussion assumes that following the completion of the Tender Offer, the Offeror would hold more than two-thirds (2/3) (the stated acceptance condition of the Tender Offer) but not more than 90% of the issued and outstanding Shares and votes in Neles. This means that there would be no redemption of the minority shareholders' Shares in Neles and that Neles would remain listed on Nasdaq Helsinki.

  • A shareholder accepting the Tender Offer should consider the following:
    • Shareholders who accept the Tender Offer will not benefit from potential favorable Share price development after the completion of the Tender Offer or positive developments in Neles' business operations. Conversely, shareholders who accept the Tender Offer will also not bear the risk of possible negative Share price development or negative developments Neles' business operations after the completion of the Tender Offer. The Board of Directors notes that the Shares have since the announcement of the Tender Offer also traded at levels that are higher than the Offer Price.
    • Shareholders who accept the Tender Offer will receive payment for their Shares only after the end of the offer period under the Tender Offer in accordance with the terms and conditions of the Tender Offer. Once the Offeror announces that all conditions to completion have been fulfilled or waived, valid acceptances of the Tender Offer may not be withdrawn, unless a third party announces a competing public tender offer for the Shares before the execution of the purchase of the Shares in accordance with the terms and conditions of the Tender Offer.
    • If Alfa Laval acquires Shares in Neles within nine months from the end of the offer period under the Tender Offer on terms that are more favorable than the Tender Offer, Alfa Laval would pursuant to the Finnish Securities Markets Act be obliged to compensate the difference to those Neles shareholders who accepted the Tender Offer. However, following the end of such nine-month period, Alfa Laval will be free to acquire further Shares in Neles on terms more favorable than those of the Tender Offer without being obliged to compensate the difference to the shareholders who accepted the Tender Offer.
  • A shareholder who does not accept the Tender Offer should consider the following:
    • Shareholders who do not accept the Tender Offer will not receive the Offer Price of EUR 11.50 for each Share upon the completion of the Tender Offer. A shareholder that has not accepted the Tender Offer wishing to dispose of the Shares held by it would have to sell its Shares on the open market or negotiate an alternative transaction concerning its Shares.
    • The completion of the Tender Offer would result in the ownership of Shares being concentrated to Alfa Laval, the consequence of which would be a reduction in the number of Neles' shareholders and the number of Shares held by other shareholders available to be freely traded on Nasdaq Helsinki. Consequently, there may be fewer potential buyers for the Shares. This may have an adverse effect on the liquidity and value of the Shares and may make it more difficult to dispose of Shares in a timely manner or at a favorable price. The scope of these potential adverse effects is dependent on, among others, the number of Shares validly tendered in the Tender Offer.
    • Should Alfa Laval, within nine months from the end of the offer period of the Tender Offer, acquire Shares on terms that are more favorable than the Tender Offer, Alfa Laval would pursuant to the Finnish Securities Markets Act be obliged to compensate the difference to those Neles shareholders who accepted the Tender Offer. Conversely, such compensation would not be payable to the shareholders who did not accept the Tender Offer.
    • Shareholders who do not accept the Tender Offer will have opportunities but also risks related to the future development of market price of the Shares as well as Neles' business operations. There can be no assurance of whether the market price of the Shares would appreciate, depreciate or remain at its current level after the Tender Offer.
    • Following the Demerger, certain equity analysts have started following Neles. Neles would following the completion of the Tender Offer become a company majority-owned by a strategic investor with potentially reduced trading volumes in the Shares. This may result in certain equity analysts discontinuing their coverage of Neles. Reduced analyst coverage may in turn adversely affect investor interest in Neles and its Shares, which may result in reduced liquidity in the Shares and a decrease in the market price of the Shares.
    • Should Alfa Laval become a controlling shareholder following the completion of the Tender Offer, Alfa Laval would be in a position to significantly influence Neles' course of business, including, but not limited to, strategy, business plan and future M&A opportunities. There can be no assurance whether the course of business, as influenced by Alfa Laval, would be as beneficial, more beneficial or less beneficial to the shareholders of Neles than the current course of business.
    • In the event that the Tender Offer is completed and provided that the acceptance level condition is not waived, Alfa Laval will hold two-thirds (2/3) or more of the Shares and exercise two-thirds (2/3) or more of the voting rights represented in General Meetings. Consequently, Alfa Laval would pursuant to the Finnish Companies Act be able to make major decisions concerning Neles independently and without cooperation with other shareholders. Such major decisions include, among others, decisions on directed issuances of shares, repurchases of shares, amendments to Neles' Articles of Association, mergers, demergers, and a voluntary liquidation of Neles. In practice Alfa Laval could achieve this influence already through holding even less than two-thirds (2/3) of the Shares and voting rights in Neles, depending on the level of participation and the number of Shares and votes represented at a General Meeting.
    • Should the Offeror obtain less than 90 % but more than two-thirds (2/3) of the Shares and voting rights in Neles, the Offeror would according to the Tender Offer Document assess alternatives to acquire the remaining Shares over time, and it is possible that Neles could become subject to certain corporate transactions, including for example purchases of further Shares in Neles after completion of the Tender Offer, or a statutory cross-border merger with and into Alfa Laval. However, the Offeror has not taken any decisions on the timeline of any such possible transactions or whether any such transactions would be undertaken at all. Should Alfa Laval cause Neles as the merging entity to merge into Alfa Laval or another company, such a merger could be for share or a cash consideration that could be higher, the same or lower than the Offer Price. In connection with such a merger, however, shareholders would have appraisal rights enabling shareholders to challenge the consideration provided in such a merger and to demand consideration amounting to the fair value of the Shares prior to the merger decision. Such fair value could be higher, the same or lower than the Offer Price. The same rights in a potential merger would not be available to shareholders who have validly tendered their Shares in the Tender Offer after the Tender Offer has been completed. However, Alfa Laval would also in connection with a merger be obliged to compensate the difference between the merger consideration and the Offer Price to those Neles shareholders who accepted the Tender Offer, if Alfa Laval would through the merger acquire Shares in Neles within nine months from the end of the offer period of the Tender Offer on more favorable terms than the Tender Offer.

Pursuant to the Finnish Companies Act, a shareholder that holds more than 90% of all shares and voting rights in a company shall have the right to acquire and, upon demand by other shareholders, also be obligated to redeem the shares owned by the other shareholders. In such case, the Shares held by Neles' shareholders, who have not accepted the Tender Offer, may be redeemed at fair value through redemption proceedings under the Finnish Companies Act in accordance with the conditions set out therein. Such fair value could be higher, the same or lower than the Offer Price.

The Board of Directors expects that delisting of Neles Shares from Nasdaq Helsinki would require that Alfa Laval, on an aggregate basis, holds Shares and voting rights in Neles that exceed 90% of all outstanding Shares and voting rights in Neles and commences proceedings to redeem minority shareholders' Shares. Delisting would result in substantially less onerous disclosure obligations and investor protection rules being applied to Neles.

Neles has undertaken to comply with the Helsinki Takeover Code issued by the Securities Market Association referred to in Chapter 11, Section 28, of the Finnish Securities Markets Act.

This statement does not constitute investment or tax advice, and the Board of Directors specifically does not evaluate herein the general price development or the risks relating to the Shares in general. The shareholders of Neles must independently decide whether to accept the Tender Offer, and they should take into account all relevant information available to them, including information presented in the Tender Offer Document and this statement as well as any other factors affecting the value of the Shares.

Neles is advised by Morgan Stanley & Co. International plc as financial advisor and by Roschier, Attorneys Ltd. as legal advisor.

Vantaa, 12 August 2020

NELES CORPORATION

Board of Directors

Further information:

Rita Uotila

Vice President, Investor Relations

Neles

Tel: +358 400 954 141

rita.uotila@neles.com

Distribution:

Nasdaq Helsinki Ltd

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www.neles.com

Neles is one of the leading providers of mission-critical flow control solutions and services for process industries. With our global team of experts and innovative solutions, we help our customers to improve their process performance and ensure safe flow of materials. Neles is listed on the Nasdaq Helsinki in Finland and had sales of about EUR 660 million in 2019. Neles employs about 2,900 people in around 40 countries. Neles was created in the partial demerger of Metso Corporation, and trading in Neles stock started on July 1, 2020.

IMPORTANT INFORMATION

THIS STOCK EXCHANGE RELEASE MAY NOT BE RELEASED, PUBLISHED OR OTHERWISE DISTRIBUTED, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO AUSTRALIA, CANADA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE’S REPUBLIC OF CHINA, JAPAN, NEW ZEALAND, SOUTH AFRICA, OR ANY OTHER JURISDICTION IN WHICH THE TENDER OFFER WOULD BE PROHIBITED BY APPLICABLE LAW.

THIS STOCK EXCHANGE RELEASE IS NOT A TENDER OFFER DOCUMENT AND AS SUCH DOES NOT CONSTITUTE AN OFFER OR INVITATION TO MAKE A SALES OFFER. IN PARTICULAR, THIS STOCK EXCHANGE RELEASE IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES DESCRIBED HEREIN, AND IS NOT AN EXTENSION OF THE TENDER OFFER, IN, AUSTRALIA, CANADA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE’S REPUBLIC OF CHINA, JAPAN, NEW ZEALAND, OR SOUTH AFRICA. INVESTORS SHALL ACCEPT THE TENDER OFFER FOR THE SHARES ONLY ON THE BASIS OF THE INFORMATION PROVIDED IN A TENDER OFFER DOCUMENT. THE TENDER OFFER IS NOT BEING MADE, AND THE SHARES WILL NOT BE ACCEPTED FOR PURCHASE FROM OR ON BEHALF OF PERSONS, DIRECTLY OR INDIRECTLY IN ANY JURISDICTION WHERE EITHER AN OFFER OR ACCEPTANCE THEREOF IS PROHIBITED BY APPLICABLE LAW OR WHERE ANY TENDER OFFER DOCUMENT OR REGISTRATION OR OTHER REQUIREMENTS WOULD APPLY IN ADDITION TO THOSE UNDERTAKEN IN FINLAND.

THE TENDER OFFER IS NOT BEING MADE DIRECTLY OR INDIRECTLY IN ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAW AND, WHEN PUBLISHED, THE TENDER OFFER DOCUMENT AND RELATED ACCEPTANCE FORMS WILL NOT AND MAY NOT BE DISTRIBUTED, FORWARDED OR TRANSMITTED INTO OR FROM ANY JURISDICTION WHERE PROHIBITED BY APPLICABLE LAWS OR REGULATIONS. IN PARTICULAR, THE TENDER OFFER IS NOT BEING MADE, DIRECTLY OR INDIRECTLY, BY ANY MEANS OR INSTRUMENTALITY (INCLUDING WITHOUT LIMITATION E-MAIL, POST, FACSIMILE TRANSMISSION, TELEX, TELEPHONE OR ELECTRONIC TRANSMISSION BY WAY OF THE INTERNET OR OTHERWISE), IN OR INTO, OR BY USE OF THE POSTAL SERVICE OF, OR THROUGH ANY FACILITIES OF A NATIONAL SECURITIES EXCHANGE OF, AUSTRALIA, CANADA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE’S REPUBLIC OF CHINA, JAPAN, NEW ZEALAND, OR SOUTH AFRICA. THE TENDER OFFER CANNOT BE ACCEPTED, DIRECTLY OR INDIRECTLY, BY ANY SUCH USE, MEANS OR INSTRUMENTALITY OR FROM WITHIN, AUSTRALIA, CANADA, HONG KONG SPECIAL ADMINISTRATIVE REGION OF THE PEOPLE’S REPUBLIC OF CHINA, JAPAN, NEW ZEALAND, OR SOUTH AFRICA. ANY PURPOTED ACCEPTANCE OF THE TENDER OFFER RESULTING DIRECTLY OR INDIRECTLY FROM A VIOLATION OF THESE RESTRICTIONS WILL BE INVALID.

THIS STOCK EXCHANGE RELEASE AND ANY OTHER DOCUMENTS OR MATERIALS RELATING TO THE TENDER OFFER ARE NOT BEING MADE AND HAVE NOT BEEN APPROVED BY AN AUTHORISED PERSON FOR THE PURPOSES OF SECTION 21 OF THE UK FINANCIAL SERVICES AND MARKETS ACT 2000 (THE "FSMA"). ACCORDINGLY, THIS STOCK EXCHANGE RELEASE AND ANY OTHER DOCUMENTS OR MATERIALS RELATING TO THE TENDER OFFER ARE NOT BEING DISTRIBUTED TO, AND MUST NOT BE PASSED ON TO, THE GENERAL PUBLIC IN THE UNITED KINGDOM. THE COMMUNICATION OF THIS STOCK EXCHANGE RELEASE AND ANY OTHER DOCUMENTS OR MATERIALS RELATING TO THE TENDER OFFER IS EXEMPT FROM THE RESTRICTION ON FINANCIAL PROMOTIONS UNDER SECTION 21 OF THE FSMA ON THE BASIS THAT IT IS A COMMUNICATION BY OR ON BEHALF OF A BODY CORPORATE WHICH RELATES TO A TRANSACTION TO ACQUIRE DAY TO DAY CONTROL OF THE AFFAIRS OF A BODY CORPORATE; OR TO ACQUIRE 50 PERCENT. OR MORE OF THE VOTING SHARES IN A BODY CORPORATE, WITHIN ARTICLE 62 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005.

Information for shareholders in the United States

Shareholders in the United States are advised that the shares in Neles are not listed on a U.S. securities exchange and that Neles is not subject to the periodic reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is not required to, and does not, file any reports with the U.S. Securities and Exchange Commission (the "SEC") thereunder.

The Tender Offer will be made for the issued and outstanding shares in Neles, which is domiciled in Finland, and is subject to Finnish disclosure and procedural requirements. The Tender Offer is made in the United States pursuant to Section 14(e) and Regulation 14E under the Exchange Act, subject to exemptions provided by Rule 14d-1(d) under the Exchange act for a "Tier II" tender offer, and otherwise in accordance with the disclosure and procedural requirements of Finnish law, including with respect to the Tender Offer timetable, settlement procedures, withdrawal, waiver of conditions and timing of payments, which are different from those of the United States. In particular, the financial information included in this stock exchange release has been prepared in accordance with applicable accounting standards in Finland, which may not be comparable to the financial statements or financial information of U.S. companies. The Tender Offer is made to Neles’ shareholders resident in the United States on the same terms and conditions as those made to all other shareholders of Neles to whom an offer is made. Any information documents, including this stock exchange release, are being disseminated to U.S. shareholders on a basis comparable to the method that such documents are provided to Neles’ other shareholders.

To the extent permissible under applicable law or regulations, Alfa Laval and its affiliates or its brokers and its brokers’ affiliates (acting as agents for Alfa Laval or its affiliates, as applicable) may from time to time and during the pendency of the Tender Offer, and other than pursuant to the Tender Offer and combination, directly or indirectly, purchase or arrange to purchase, the shares in Neles or any securities that are convertible into, exchangeable for or exercisable for such shares. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. To the extent information about such purchases or arrangements to purchase is made public in Finland, such information will be disclosed by means of a press release or other means reasonably calculated to inform U.S. shareholders of Neles of such information. In addition, the financial advisers to Alfa Laval may also engage in ordinary course trading activities in securities of Neles, which may include purchases or arrangements to purchase such securities. To the extent required in Finland, any information about such purchases will be made public in Finland in the manner required by Finnish law.

Neither the SEC nor any U.S. state securities commission has approved or disapproved the Tender Offer, passed upon the merits or fairness of the Tender Offer, or passed any comment upon the adequacy, accuracy or completeness of the disclosure in this stock exchange release. Any representation to the contrary is a criminal offence in the United States.

The receipt of cash pursuant to the Tender Offer by a U.S. holder of shares in Neles may be a taxable transaction for U.S. federal income tax purposes and under applicable U.S. state and local, as well as foreign and other, tax laws. Each holder of shares in Neles is urged to consult its independent professional adviser immediately regarding the tax consequences of accepting the Tender Offer.

It may be difficult for Neles’ shareholders to enforce their rights and any claims they may have arising under the U.S. federal securities laws, since Alfa Laval and Neles are located in non-U.S. jurisdictions, and some or all of their respective officers and directors may be residents of non-U.S. jurisdictions. Neles’ shareholders may not be able to sue Alfa Laval or Neles or their respective officers or directors in a non-U.S. court for violations of the U.S. federal securities laws. It may be difficult to compel Alfa Laval and Neles and their respective affiliates to subject themselves to a U.S. court’s judgment.

Forward-looking statements

This stock exchange release contains statements that, to the extent they are not historical facts, constitute "forward-looking statements". Forward-looking statements include statements concerning plans, expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position, future operations and development, business strategy and the trends in the industries and the political and legal environment and other information that is not historical information. In some instances, they can be identified by the use of forward-looking terminology, including the terms "believes", "intends", "may", "will" or "should" or, in each case, their negative or variations on comparable terminology. By their very nature, forward-looking statements involve inherent risks, uncertainties and assumptions, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Given these risks, uncertainties and assumptions, investors are cautioned not to place undue reliance on such forward-looking statements. Any forward-looking statements contained herein speak only as at the date of this stock exchange release.

Disclaimer

Skandinaviska Enskilda Banken AB (publ), which is under the supervision of the Swedish Financial Supervisory Authority (Finansinspektionen), is acting as lead financial adviser to Alfa Laval and no one else in connection with the Tender Offer and arranger in relation to the Tender Offer, will not regard any other person than Alfa Laval as its client in relation to the Tender Offer and will not be responsible to anyone other than Alfa Laval for providing the protection afforded to clients of Skandinaviska Enskilda Banken AB (publ) nor for providing advice in relation to the Tender Offer.

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