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Metso and Tamfelt enter into a Combination Agreement; Share Exchange Offer for all of Tamfelt’s shares

Friday 06. November 2009 - Metso and Tamfelt, one of the world’s leading suppliers of technical textiles, have on November 5, 2009 agreed to combine their operations under the combination agreement entered into (the "Combination Agreement").

As a result, Metso will make a public tender offer to purchase all of the issued and outstanding shares in Tamfelt. The combination will strengthen Metso’s services business especially in the pulp and paper industry. For Tamfelt, the combination creates new growth opportunities especially outside Europe, where Metso has an extensive installed base and wide sales and services network.

The public tender offer will be carried out in the form of a share exchange (the “Share Exchange Offer”). Metso offers Tamfelt’s shareholders 3 new shares issued by Metso for each 10 Tamfelt’s shares (“Shares”). Metso offers EUR 0.35 for each stock option issued by Tamfelt (“Stock Options”).

The Board of Directors of Tamfelt unanimously recommends that Tamfelt’s shareholders and holders of Stock Options accept Metso’s offer. Major shareholders, Ilmarinen Mutual Pension Insurance Company, Varma Mutual Pension Insurance Company, Tapiola Mutual Pension Insurance Company, Mandatum Life Insurance Company Limited, Kaleva Mutual Insurance Company as well as certain foundations and private shareholders, whose aggregated ownership in Tamfelt is 35.58 per cent of Shares including 2.82 per cent ownership of Tamfelt held by Metso, have irrevocably and unconditionally undertaken to accept the Share Exchange Offer.

The offer period under the Share Exchange Offer is expected to commence on or about November 23, 2009 and to expire on or about December 18, 2009.

Metso estimates that the combination will be closed in the first quarter of 2010 at the latest. The combination is subject to competition authority approvals in Finland and some other countries.

“We highly value the competencies and long history of Tamfelt and welcome Tamfelt shareholders to continue the tradition as Metso shareholders”, states Jorma Eloranta, President and CEO of Metso.
“The focus of the markets is shifting increasingly outside Europe. We believe that Metso’s global network and strong position also in the emerging markets will further strengthen Tamfelt’s competitiveness also in these areas. The combination is a continuation to our long-term and successful co-operation. As both companies are technology leaders in their respective areas, we believe it will accelerate technological development in the future”, states Tamfelt’s Chairman of the Board Mikael von Frenckell.

Benefits of the combination

•The combination is estimated to increase Metso’s services business by approximately EUR 140 million annually. At the same time, the services share of Metso’s Paper and Fiber Technology segment increases from 41 per cent to approximately 50 per cent of net sales.
•Tamfelt’s PMC products (Paper machine clothing), i.e., forming fabrics, felts and belts complement Metso’s product and services offering, thus enabling the offering of more competitive and comprehensive solutions for the companies’ shared customer base. Metso does not currently have paper and board machine clothing products in its own product offering.
•Metso’s extensive installed base and global sales and services network provide Tamfelt’s products and services new growth potential especially outside Europe.
•Tamfelt’s filter fabrics complement Metso’s wear product offering not only in the pulp and paper industry but also, for example, in the mining and energy industries.
•After the combination, development of technical textiles can be integrated into Metso’s fiber and paper technology research and development. Tighter co-operation is expected to, for example, speed up new paper and board machine start-ups, thus supporting also Metso’s new project sales.
•According to Metso’s preliminary estimates, the global combination of operations is expected to result in total synergies of EUR 7-10 million annually. The non-recurring costs arising from the combination (including costs related to the transaction) are expected to be approximately EUR 4 million and be phased over 2009-2011.
•The combination is not expected to have material impact on Metso’s EPS in 2010.


According to Bertel Langenskiöld, President of Metso’s Paper and Fiber Technology segment, “Tamfelt is a profitable company with long heritage, top of the line product portfolio and production facilities. We have had close, long-term cooperation with Tamfelt especially in product development, and we know each other very well. We expect that through the global combination of Metso’s and Tamfelt’s operations and knowledge, the growth of our services business will exceed the average paper machine market growth rate. In recent years, the change in the pulp and paper industry especially in Europe and North America has directed our customers’ demand towards service, maintenance and optimization of their production processes. In emerging markets, such as China and South America, our installed base has rapidly increased, which provides exciting opportunities for our services and optimization business.”
Also Reima Kerttula, President of Tamfelt believes that the combination will improve the competitiveness of both companies: “Together we will have a stronger global service network and more comprehensive product offering. In addition, the combination yields opportunities to more efficient product development. I believe that after the combination, Tamfelt will be even more competitive.”

The leading supplier of technical textiles
Tamfelt is one of the leading suppliers of technical textiles. It develops, manufactures and markets PMC products (Paper and board machine clothing) such as forming fabrics, felts and belts as well as wet and dry filtration media for the pulp and paper, mining and chemical industries and energy production. In addition, the company is the global market leader in laundry felts. In 2008, Tamfelt’s net sales were EUR 165 million and for January-September 2009 EUR 93 million. Tamfelt has currently approximately 1,350 employees. The company’s main locations are in Finland, and it also has production facilities in China, Portugal, Poland and Brazil. The company was founded in 1797 and its shares are traded on NASDAQ OMX Helsinki Ltd (the “Helsinki Stock Exchange”).

After the combination, Tamfelt will continue its operations as a business line in Metso’s Paper and Fiber Technology segment. Apart from some administrative operations, the combination is not expected to have any immediate effect on the position of Tamfelt’s management or employees. Tamfelt will realize the already agreed and undergoing cost reduction measures and strategic rearrangements.

Share Exchange Offer and offer for Stock Options

The offer period under the Share Exchange Offer is expected to commence on or about November 23, 2009 and to expire on or about December 18, 2009. Metso reserves the right to extend the offer period in accordance with the terms and conditions of the Share Exchange Offer. The share exchange offer document will be available on or about November 19, 2009.

In the Share Exchange Offer, shareholders in Tamfelt are offered 3 new shares in Metso in exchange for every 10 Tamfelt Shares held by such shareholder, representing a premium of 20.3 percent compared to the closing price of Tamfelt Shares on the Helsinki Stock Exchange on November 4, 2009, the last trading day preceding this announcement, and a premium of 19.5 percent compared to the volume-weighted average price of Tamfelt Shares on the Helsinki Stock Exchange during the last 3 months. Premiums have been calculated based on the closing price, EUR 19.65, of Metso shares in Helsinki Stock Exchange on November 4, 2009, the last trading day proceedings this announcement.

Metso also offers to acquire all of the Stock Options issued by Tamfelt for EUR 0.35 in cash. Currently, each Stock Option entitles its holder to subscribe for one Share in Tamfelt. The current share subscription price under the Stock Options is EUR 7.46. The Stock Options are not subject to public trading.

The Board of Directors of Metso has been authorized by the Annual General Meeting held on March 31, 2009 to decide on a share issue of a maximum of 15,000,000 new Metso shares and a maximum of 10,000,000 treasury shares of Metso, in deviation of Metso’s shareholders’ pre-emptive right to subscribe for shares. On November 5, 2009, the Board of Directors of Metso decided on a share issue directed at Tamfelt’s shareholders, as required for implementing the Share Exchange Offer. The directed share issue is conditional upon Metso deciding to complete the Share Exchange Offer.

Major shareholders of Tamfelt, including Metso, whose aggregated ownership in Tamfelt is 35.58 per cent of Shares, have irrevocably and unconditionally undertaken to accept the Share Exchange Offer.

The Board of Directors of Tamfelt unanimously recommends that the shareholders of Tamfelt accept the Share Exchange Offer and that the holders of Stock Options accept the cash offer. The Board of Directors of Tamfelt has received a fairness opinion from Access Partners Oy, according to which the consideration offered in the Share Exchange Offer is fair, from a financial point of view, to the shareholders and holders of Stock Options in Tamfelt. The Board of Directors of Tamfelt will issue its complete statement on the Share Exchange Offer on or about November 9, 2009.

On the date of the announcement of the Share Exchange Offer, Tamfelt’s share capital amounts to EUR 27,563,964 and the number of Shares issued to 30,093,763. Metso holds 847,350 Tamfelt Shares, representing 2.82 percent of all the issued and outstanding Shares.

Conditions to complete the Share Exchange Offer and the offer for Stock Options

The completion of the Share Exchange Offer and offer for the Stock Options will be subject to the following conditions (or waiver by Metso):

(i)The Share Exchange Offer has been bindingly accepted with respect to shares representing at least 67 percent of all shares and voting rights in Tamfelt on a fully diluted basis (including Shares already owned by Metso or its affiliates) and that the acceptances have not been withdrawn.

(ii)The receipt of all necessary approvals from the relevant competition authorities and possible conditions set forth in such approvals can be accepted by Metso.

(iii)No such fact or circumstance has arisen of which Metso did not have knowledge at the time of the announcement of the Share Exchange Offer, that either has or is reasonably likely to have a material adverse effect on the business, assets, financial condition, results of operations or future prospects of Tamfelt and its subsidiaries.
(iv)The Combination Agreement between Metso and Tamfelt has not been terminated in accordance with its terms and it continues to be in full force.

(v)A general meeting of shareholders of Tamfelt has resolved to (i) remove Article 12 of Tamfelt’s Articles of Association (Obligation to Redeem Shares) and (ii) to elect Jorma Eloranta, Mikael von Frenckell, Pasi Laine, Bertel Langenskiöld and Jouko Oksanen as members of the Board of Directors of Tamfelt, with the effectiveness of such resolutions being subject only to the public announcement of Metso promptly after the last date of the offer period (including any extended or discontinued extended offer period) to the effect that the offer conditions of the Share Exchange Offer have been satisfied (or waived) by Metso.

Summary of the Combination Agreement
This summary is not an exhaustive presentation of all the terms and conditions of the Combination Agreement. The summary aims at describing the terms and conditions of the Combination Agreement to the extent that such terms and conditions may materially affect the assessment of a shareholder or Stock Option holder of Tamfelt of the terms and conditions of the Share Exchange Offer or the offer for Stock Options. Nothing in the Combination Agreement (or this summary thereof) confers any rights or obligations on any person other than Metso or Tamfelt.

Objectives of the Combination Agreement
Metso and Tamfelt (both separately, a “Party” and together, the “Parties”) executed the Combination Agreement on November 5, 2009. Pursuant to the Combination Agreement, Metso will acquire, through the Share Exchange Offer and through a cash offer for the Stock Options, and, if necessary, through subsequent compulsory redemption proceedings in accordance with the Finnish Companies Act, all Shares and Stock Options in Tamfelt. The intention of Metso is to cause the Shares to be delisted from the Helsinki Stock Exchange.

Share Exchange
Under the Combination Agreement, the Offer Period for the Share Exchange Offer shall initially extend until four weeks after the date on which it commences and it may be extended by Metso from time to time in accordance with the terms and conditions of the Share Exchange Offer.

Pursuant to the Combination Agreement, Metso offers to acquire all of Tamfelt’s issued and outstanding Shares and Stock Options and to pay the purchase price for the Shares in Metso’s new shares by issuing 3 new Metso shares for each 10 Shares of Tamfelt, and for the Stock Options EUR 0.35 in cash.

Under the Combination Agreement, the completion of the Share Exchange is subject to the fulfillment (or waiver by Metso) of certain conditions. These conditions are set forth in section “Conditions to complete the Share Exchange Offer and offer for the Stock Options” above.
If, as a result of the completion of the Share Exchange, Metso’s ownership exceeds 90 percent of all shares and voting rights in Tamfelt, Metso shall commence at the earliest practical time the compulsory redemption proceedings in accordance with the Finnish Companies Act.

Upon the redemption of the remainder of the Shares not tendered in the Share Exchange Offer, Metso intends to apply for the delisting of Tamfelt’s Shares on the Helsinki Stock Exchange.

Extraordinary General Meeting of shareholders of Tamfelt

Under the Combination Agreement, the Board of Directors of Tamfelt has undertaken to convene an Extraordinary General Meeting of shareholders of Tamfelt be held on no later than one week prior to the expiry of the offer period and to propose to such meeting to resolve on the removal of Article 12 from Tamfelt’s Articles of Association and to elect a new Board of Directors for Tamfelt, as described in “—Certain Consequences of the Share Exchange—Extraordinary General Meeting of Shareholders of Tamfelt” below.

Recommendation of the Board of Directors of Tamfelt
Under the Combination Agreement, the Board of Directors of Tamfelt has undertaken to unanimously and unconditionally recommend to the shareholders and Stock Option holders in Tamfelt to accept the Share Exchange Offer and to vote in favor of the removal of Article 12 of Tamfelt’s Articles of Association, and the election of a new Board of Directors for Tamfelt as described in “—Certain Consequences of the Share Exchange—Extraordinary General Meeting of Shareholders of Tamfelt” below.

The Board of Directors of Tamfelt may, at any time prior to the completion of the Share Exchange Offer, withdraw, modify or amend its recommendation or take actions contradictory to its earlier recommendation, if (a) the Board of Directors of Tamfelt considers that, due to materially changed circumstances, the acceptance of the Share Exchange Offer would no longer be in the best interest of Tamfelt and/or the shareholders and Stock Option holders in Tamfelt; and (b) the Board of Directors of Tamfelt has received an opinion from an independent reputable advisor, according to which such withdrawal, modification or amendment of the recommendation, or acting contradictory to the recommendation, is in the best interest of Tamfelt and/or the shareholders and Stock Option holders in Tamfelt; and (c) the Board of Directors of Tamfelt has provided Metso with a reasonable opportunity to negotiate with the Board of Directors of Tamfelt on such actions; and (d) if an action allowed is connected to a Superior Offer (as defined below), the Board of Directors of Tamfelt has given Metso a reasonable opportunity during not less than five (5) days to agree with the Board of Directors of Tamfelt on improving the terms and conditions of the Share Exchange Offer.

Tamfelt shall not, directly or indirectly, solicit any inquiries or facilitate or solicit any proposal or offer (including, without limitation, any proposal or offer to shareholders and Stock Option holders in Tamfelt) that constitutes, or may reasonably be expected to lead to, any competing transaction or that could otherwise harm or hinder the completion of the combination or have any discussions or negotiations with anyone in furtherance of any such actions.

If Tamfelt receives from any person an unsolicited bona fide written offer for a competing transaction (a “Competing Offer”) that the Board of Directors of Tamfelt determines in good faith to constitute a Superior Offer (as defined below), Tamfelt may take any action(s) reasonably required in respect of such Competing Offer, if: (a) the Board of Directors of Tamfelt determines in good faith that it is obligated to take such action(s) in order to comply with its fiduciary duties; and (b) Tamfelt has complied with the terms of the Combination Agreement.

A “Superior Offer” shall mean a bona fide binding written offer not solicited by or on behalf of Tamfelt made by a third party to acquire all of the Shares and Stock Options in Tamfelt pursuant to a tender offer or a merger, or to acquire all the operations of Tamfelt pursuant to a sale of all or substantially all of the assets of Tamfelt, on terms which the Board of Directors of Tamfelt reasonably determines in good faith to be substantially more beneficial for the shareholders and Stock Option holders in Tamfelt than the Share Exchange Offer, as the same may be modified by Metso. In determining whether an offer is substantially more beneficial for the shareholders and Stock Option holders in Tamfelt, the Board of Directors of Tamfelt must also take into account whether the potential Superior Offer is reasonably capable of being consummated (taking into account, among other things, all legal, financial, regulatory and other aspects of such proposal and the identity of the person making such proposal) and the availability of financing.

Representations and warranties

In the Combination Agreement, the Parties give each other certain representations and warranties customary in transactions of a similar nature relating to, among other things:

•certain corporate matters including the organization, qualification to do business and authority to execute the Combination Agreement and perform the obligations thereunder; and
•the information disclosed by the respective party, including the financial statements, interim reports and public announcements.

The warranties shall automatically terminate on the completion date for the Share Exchange Offer thereby having no further effect after such date.

Undertakings
Under the Combination Agreement, the Parties have given certain undertakings to each other with respect to the procedures to be followed in connection with the Share Exchange Offer, including, among other things, the following:
•each Party has undertaken to use its best efforts to do, or cause to be done, and to assist and cooperate with the other Party in doing, all things necessary or advisable to consummate in the most expeditious manner practicable, the Share Exchange Offer and the combination;
•Metso has agreed to make all submissions, notifications and filings it deems necessary to obtain all consents, approvals or actions by any competition authorities under any applicable competition laws in any jurisdiction;
•Tamfelt has agreed to provide to Metso and its advisors access upon prior notice and at reasonable times to such information concerning the business, properties, contracts, assets, liabilities, personnel and other aspects of Tamfelt and its subsidiaries as Metso may reasonably request;
•Tamfelt has undertaken to continue its business operations in the ordinary course of business and consistent with past practice, and to refrain from making or carrying out any material changes;
•each Party has undertaken not to take any actions to distribute or declare dividends prior to the closing date; and
•each Party has undertaken to notify the other Party of certain events and to consult with each other before issuing any public announcements.

Termination
In accordance with the terms and conditions, the Combination Agreement can be terminated as follows:

(a) by a mutual written agreement of the Parties;
(b) by either Party, if the closing date shall not have occurred on or before March 31,2010; provided, however, that this right to terminate shall not be available to the Party whose failure to fulfill any obligation under the Combination Agreement shall have resulted in the failure of the Closing Date to occur on or before such date;
(c) by either Party, if any order preventing the consummation of the completion or a material part of it shall have been issued by any court or other authority of competent jurisdiction and shall have become final and non-appealable;
(d) by Tamfelt, if the Board of Directors of Tamfelt has, in accordance with the terms of the Combination Agreement, withdrawn, modified or amended its recommendation;
(e) by Metso, if the Board of Directors of Tamfelt has (i) withdrawn, modified or amended, or proposed to withdraw, modify or amend its recommendation, (ii) approved or recommended, or proposed to approve or recommend, any Competing Offer, (iii) announced a neutral position with respect to any Competing Offer, and failed to reject or recommend such Competing Offer within three (3) days of the announcement of such neutral position, or (iv) taken any other action contradictory to its earlier recommendation and has not rectified such contradictory action within three (3) days from Metso’s written notice thereof;
(f) by Metso, upon (i) an occurrence of an event that has resulted in or constituted, or would reasonably be expected to result in, or constitute, a material adverse effect on the business, assets, financial condition, results of operations or future prospects of Tamfelt and its subsidiaries; or (ii) Metso, after the execution of the Combination Agreement receiving new information undisclosed to it prior to the execution of the Combination Agreement which has a material adverse effects on the business, assets, financial condition, results of operations or future prospects of Tamfelt and its subsidiaries; and
(g) by Tamfelt, upon a material breach of any warranty given by Metso in the Combination Agreement; or by Metso, upon a material breach of any warranty given by Tamfelt in the Combination Agreement; or by either Tamfelt or Metso, upon a material breach of certain covenants included in the Combination Agreement, by the other Party.

If the Combination Agreement is terminated by either Party in accordance with (d) or (e) above, Tamfelt shall reimburse Metso for all of its out-of-pocket expenses in connection with the transactions contemplated by the Combination Agreement.

Governing Law

The Combination Agreement is governed by Finnish law.

Certain consequences of the Share Exchange

Extraordinary General Meeting of Shareholders of Tamfelt
Pursuant to the terms under the Combination Agreement and of the Share Exchange Offer, a general meeting of shareholders of Tamfelt shall be convened resolve to (i) remove Article 12 of Tamfelt’s Articles of Association (Obligation to Redeem Shares) and (ii) elect Jorma Eloranta, Mikael von Frenckell, Pasi Laine, Bertel Langenskiöld and Jouko Oksanen as members of the Board of Directors of Tamfelt, with the effectiveness of such resolutions being subject only to the public announcement of Metso promptly after the last date of the offer period (including any extended or discontinued extended offer period) to the effect that the offer conditions of the Share Exchange Offer have been satisfied (or waived) by Metso.

Meeting of the Board of Directors of Metso
The Board of Directors of Metso has been authorized by the General Meeting of shareholders held on March 31, 2009 to decide on a share issue of a maximum of 15,000,000 new Metso shares and a maximum of 10,000,000 treasury shares of Metso, in deviation of Metso’s shareholders’ pre-emptive right to subscribe for shares. On November 5, 2009, the Board of Directors of Metso decided on a share issue directed at Tamfelt’s shareholders, as required for implementing the Share Exchange Offer. The directed share issue is conditional upon Metso deciding to complete the Share Exchange Offer.

The new Metso shares to be issued
The subscription for the new Metso shares to be issued will take place as a payment-in-kind so that each 10 Tamfelt Shares will entitle its holder to subscribe 3 new Metso shares. If the Share Exchange is accepted in full, the new Metso shares will represent approximately 6 percent of Metso’s share capital and voting rights after the share issue. The Share Exchange will be carried out on the terms and conditions presented in the Share Exchange Offer Document.

An application will be made to the Helsinki Stock Exchange to list the new shares issued in order to carry out the Share Exchange in the same class as Metso’s existing shares. The issuance of Metso’s new shares will be carried out in connection with the admission of the shares to public trading.

The new Metso shares to be issued as in the Share Exchange Offer will confer the right to a dividend and other shareholder rights when Metso’s new shares have been entered in the Finnish Trade Register.

Shareholding of Metso’s and Tamfelt’s shareholders in the combined company
If the Share Exchange Offer is accepted in full, Metso’s current shareholders will own a total of approximately 94 percent and former Tamfelt’s shareholders a total of approximately 6 percent of Metso’s shares.

Certain risk factors related to the combination
Tamfelt shareholders should familiarize themselves carefully with the matters presented in section “Risk Factors Related to the Share Exchange Offer and Metso” of the share exchange offer document as well as with the other information given in the share exchange offer document.

ADVISORS

SEB Enskilda acts as the financial advisor and White & Case LLP as the legal advisor of Metso in connection with the Share Exchange Offer. Access Partners acts as the financial advisor and Merilampi Attorneys Ltd as the legal advisor of Tamfelt in connection with the Share Exchange Offer.

This release may not be released or otherwise distributed, in whole or in part, in or into Australia, Canada, Japan, New Zealand, South Africa or the United States. This release is not a tender offer document and as such does not constitute an offer or invitation to make a sales offer. Investors shall accept the Share Exchange Offer for the shares and the offer for the Stock Options only on the basis of the information provided in a share exchange offer document. Offers will not be made directly or indirectly in any jurisdiction where either an offer or participation therein is prohibited by applicable law or where any share exchange offer document or registration or other requirements would apply in addition to those undertaken in Finland.

The share exchange 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 law. In particular, the Share Exchange Offer or the offer for the Stock Options is not being made, directly or indirectly, in or into, or by use of the postal service of, or by any means or instrumentality (including, without limitation, facsimile transmission, telex, telephone or the Internet) of interstate or foreign commerce of, or any facilities of a national securities exchange of, Australia, Canada, Japan, New Zealand, South Africa or the United States. The Share Exchange Offer or offer for the Stock Options cannot be accepted by any such use, means or instrumentality or from within Australia, Canada, Japan, New Zealand, South Africa or the United States.