Technical Split Price (Base Case Targets) - What if it Opens Differently? Scenario Analysis

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1 Parent: Sector: Spinoff: Sector: Metso Corporation (MEO1V) Industrial Machinery / Equipment Valmet Corporation (VALMT) Industrial Machinery / Equipment Key Dates: Record Date: December 30, 2013 Ex-Date: December 31, 2013 Ratio: 1:1 (1 share of MEO1V - 1 share of VALMT) TSR Briefing: Bear, Base & Bull Case Valuations (see p10) Metso +27% / Valmet +22% (see p10) Parent: Metso Corp. (MEO1V) Mkt. Cap: c. 3.5bn/US$4.9bn (ex-spinoff) Technical Split Price (Base Case Targets) - What if it Opens Differently? Scenario Analysis Metso (Combined) Metso (Parent ex-spinoff) Valmet (Spinoff entity) Share Price Target Price Upside % % % % % % Technical Spilt Price Target Price Upside % % % % % % Spinoff: Valmet Corp. (VALMT) Mkt. Cap: c. 0.9bn/ US$1.3bn Market Leader In Services, Mining Crushing & Grinding Business Finland Based Metso Strengthens Its Competitive Positioning Further Through Spinoff of Less Attractive Pulp, Paper and Power (PPP) Division; Spinoff - A Structurally-Challenged Business With Asset-Light Structure; TSR Recommends Entry Pre-Spinoff / MEO1V Enters Our TSR MP at Today s VWAP (x1 USD $ = EUR ) What s Interesting? (MEO1V - Buy) What s Interesting? (VALMT - Buy) #1 market leader in Mining and Construction business and striving to become #3 in Automation business Growth opportunities in flow control within Automation High contribution from services business offers growth & stability Emerging market opportunity Strong ROCE and healthy dividend yield Actively looking for new growth opportunities via acquisitions What s a Risk? Decline in mining capital expenditure More exposed to commodity price fluctuations Economic downturn may lead to decline in the operating margin Business environment risks Peer Comparison - METSO (Parent ex-spinoff) Company Ticker Mkt. Cap in m EV in m EV/EBITDA (x) FY13E FY14E Flsmidth & Company A/S FLS 1,970 2, x 9.9x Astec Industries, Inc. ASTE x 11.4x The Weir Group Plc WEIR 5,339 6, x 11.5x Outotec Oyj OTE1V 1,300 1, x 10.5x Terex Corporation TEX 3,264 4, x 9.6x Joy Global JOY 4,032 4, x 11.8x Flowserve FLS 7,623 8, x 13.6x Peer Group Average 13.9x 12.3x Global market leader with #1-2 market positions Asset-light operative model supports ROCE and cash flow Stable services business offers more predictable and less cyclic revenue stream Cost efficiency program to boost profitability New product offerings to benefit the existing installed base Strong balance sheet to support growth via acquisitions What s a Risk? Operates in highly competitive markets Exposure to foreign exchange risk High exposure in low-growth developed markets Global economic uncertainty Peer Comparison - VALMT (Spinoff) Share Price Target Price Upside % % % % % % % % % Sources: The Spinoff Report (TSR) Research, Company filings, Bloomberg Strictly for clients of TSR Contact: Jim Osman, jimmyosman@spinoffreport.com, London: + 44 (0) ; New York: +1 (212) Company Ticker Mkt. Cap in m EV in m EV/EBIT (x) FY13E FY14E Andritz AG ANDR 4,626 4, x 11.3x The Babcock & Wilcox Company BWC 2,724 2, x 10.9x Foster Wheeler AG FWLT 2,301 2, x 10.9x GLV GLV x 11.0x Peer Group Average 14.5x 11.0x Note: Please refer to page 17 for completed peer matrix of METSO.

2 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Parent: Sector: Spinoff: Sector: Metso Corporation (MEO1V) Industrial Machinery / Equipment Valmet Corporation (VALMT) Industrial Machinery / Equipment Jim Osman jimmyosman@spinoffreport.com + 44 (0) Anupama Koul akoul@spinoffreport.com + 44 (0) Target Price & Risk MEO1V / VALMT MEO1V (ex-spin) VALMT Target price Rating Buy (+16%) Buy (+13%) Technical split price Current share price (Combined) Horizon (months) Risk Low Low Performance & EV - MEO1V (Pre Spinoff) Market Data - MEO1V (Pre Spinoff) Share Price (Dec 24 close) Return 5d/YTD/1Y (%) 9.64/-10.09/-6.65 Avg d turn 30d/60d/90d ( m) 18.8/18.9/18.5 Volatility 30d/90d/200d (%) 24.47/28.69/29.70 High/Low 1Yr ( ) 34.93/25.64 Market Cap ( m) 4,502 Net IB Debt ( m) 604 Enterprise Value ( m) 5,341 Miscellaneous - MEO1V (Pre Spinoff) Spinoff announcement March 25, 2013 Majority shareholder Listing Exchange Ticker/Bloomberg Cevian Capital Helsinki Stock Exchange MEO1V FP Equity O/S shares (m) 150 Next News Flow MEO1V (LHS) Volume (RHS) HEX 25 (rebased to MEO1V prices) 5.0m 4.0m 3.0m 2.0m 1.0m 0.0m February 6, 2014 Q413 Earnings Release Activist Push To Eliminate Valuation Discount / High Margin Play in Parent Valuation Upside of +15% (Base Case) & +27% (Bull Case) / Spinoff To Facilitate Transparency Into Paper Business - Spinoff Valuation Upside of +12% (Base) & +22% (Bull) / TSR Recommends to Enter Pre Spinoff After eight years of ceaseless goading from Cevian Capital, the European activist hedge fund, which established a stake of 4.0% in MEO1V in 2005 and gradually raised it to become the largest shareholder with a current 13.35% stake, Metso Corporation (MEO1V) is finally Spinning off its Pulp, Paper and Power (PPP) division. As per the Spinoff proposal, shareholders of MEO1V will receive one share of Valmet (Spinoff) for each share they hold in MEO1V (1:1). Event: On October 1, 2013, Metso Corporation s Extraordinary General Meeting (EGM) approved the BoDs proposed plan for Metso s Spinoff into two companies. i.e., Metso s Pulp, Paper and Power (PPP) business, which will be transferred to an independent entity, named as Valmet Corporation and listed on the NASDAQ OMX Helsinki, whereas, MEO1V will continue to hold the current Mining, Construction and Automation businesses (MCA) following the Spinoff. The proposed Spinoff was supported by the prominent shareholders of MEO1V. TSR View: We are positive on the Spinoff of the Pulp, Paper and Power (PPP) business as it will reduce the conglomerate discount, provide better understanding of the PPP business and narrow the existing valuation gap for the respective businesses vis-a-vis the sector due to the current multi-business structure. We are positive on the parental MCA business on account of higher margins and significant service exposure and expect both services and automation to grow broadly in-line with peers. Post event, we believe that the Spinoff entity Valmet will have an asset-light structure which will enable it to generate stable cash flows and expand into emerging economies, which coupled with 100m cost efficiencies will result in improved margins over the long term. We advise investors to enter into the Metso stock on a pre Spinoff basis as the parent will see a multiple re rating post Spinoff and the Spinoff Valmet will witness improved performance over the longer term. Nb: Post Spinoff Metso ADR holders will not receive any ADRs of Valmet; instead they will receive one share of Valmet. As a result, we expect some near term selling pressure from the ADR holders for Valmet shares post Spinoff. We advise investors to buy/ accumulate Valmet at lower levels resulting from the initial selling pressure and near term performance concerns. Metso Corp (ex-spinoff) Geared for Growth through a High Share of Services Metso Corporation (MEO1V) consists of the high-margin MCA business (adjusted EBITA margin of 11.4% in FY12), with margin expansion opportunities from further shift in the product mix to higher service share, which MEO1V targets to grow by ~10% per year in the coming years as margins of the Services business is nearly double the Equipment business margins. Also we see growth opportunities within Flow control in Automation business which is a high-margin business and is targeting to become a top 3 player from its current 5 th position. Major growth drivers: a) Demand for metals and minerals driven by growth markets, b) growth of services business, c) expansion of construction business in growth countries, c) growth opportunity within Flow control in Automation business & e) operating efficiencies. We assign a Buy rating to Metso with a one-year price target of 27.62, implying an upside of 15.5% from its technical split price of Valmet Corp - Structurally-Challenged Business with Asset-Light Structure Valmet Corporation will offer new machines and plants, rebuilds, process control and services especially for industries using bio-based raw materials. Post Spinoff, Valmet will have relatively low-margin Pulp, Paper and Power business, which is currently suffering from declining demand for paper in the developed markets. However, the services business comprises 37% of net sales in FY12, which, we believe, will provide some support to margins coupled with the ongoing cost-saving program targeted at 100m with the full impact materializing in Major growth drivers for Valmet: a) Demand for market pulp, b) Board and tissue consumption, c) Improving presence in the high-growth emerging economies, d) Catering to the market s changing demand, e) Maintenance and service outsourcing and c) Cost competitiveness program.. We assign a Buy rating to Valmet with a one-year price target of 6.93, implying an upside potential of 12.7% from its technical split price of Key figures and ratios ( m) Metso Corporation -MEO1V (ex-spinoff) Valmet Corporation -VALMT (Spinoff) Y/E Dec 31 FY12 FY13E FY14E FY12 FY13E FY14E Net Sales 4,499 4,027 3,799 3,014 2, Revenue growth (%) NA -10.5% -5.7% NA -10.6% -8.0% Recurring EBITDA Margin (%) 12.3% 12.9% 13.3% 7.0% 4.0% 7.7% Recurring EBITA Margin (%) 11.0% 11.4% 11.8% 5.0% 1.7% 5.4% Recurring EBIT Margin (%) 10.6% 10.8% 11.2% 4.0% 0.7% 4.3%

3 Table of Contents Part A Valuation & Fundamentals Part A: What does Metso consist of?... 3 Price Charts Metso (Pre Spinoff)... 5 Spinoff Summary... 7 Is MEO1V right in spinning off?... 9 Valuation Scenarios Activist shareholder Cevian Capital Key Highlights Metso (ex-spinoff) Risks to Valuation Metso (ex-spinoff) Valuation Summary Metso (ex-spinoff) Key Highlights Valmet (Spinoff Entity) Risks to Valuation Valmet (Spinoff Entity) Valuation Valmet (Spinoff Entity) Technical Split Price Part B Technicals Technical Shareholding Part C Insiders Insider Overview

4 Part A: What does Metso consist of? Parent ex-spinoff: Metso Corporation (MEO1V) Metso Corporation (MEO1V) is a Finnish engineering company, which, following the Spinoff of its Pulp, Paper and Power business, will continue to hold the following segments. a) Mining and Construction (Net sales including inter-segmental sales: 3,492m and Recurring EBITA before corporate expenses: 420m in FY12) is a global supplier of technology and services for the mining and construction industries and consists of Minerals Processing Solutions (FY12 net sales including inter-segmental sales: 1,317m), Crushing and Screening Equipment (FY12 net sales including inter-segmental sales: 477m) and Services business (FY12 net sales including inter-segmental sales: 1,692m). b) Automation (Net sales including inter-segmental sales: 859m and Recurring EBITA before corporate expenses: 101m in FY12) improves production performance, cost, material and energy efficiency, and risk management for process industry customers and consists of Process Automation Systems (FY12 net sales including inter-segmental sales: 194m), Flow Control (FY12 net sales including inter-segmental sales: 449m) and Services business (FY12 net sales including inter-segmental sales: 449m). MEO1V owns a 61.0% equity stake in Valmet Automotive c) Valmet Automotive (Net sales including inter-segmental sales: 216m and Recurring EBITA before corporate expenses: 0.6m in FY12) is a service provider in automotive engineering, vehicle manufacturing, convertible roof systems and related business services. They essentially produce cars for clients including: the American premium green car maker, Fisker Automotive Inc.; BMW/MINI/Bentley, Daimler AG/Mercedes-Benz; fledgling Russian F1 team, Marussia Motors; Porsche AG, Renault and the VW Group. MEO1V owns a 61.0% equity stake. New Metso Product portfolio summary Mining & Construction Mining Construction Recycling Flow control Grinding solutions, conveyors, feeders, separation solutions Mobile crushers and screens, process equipment Equipment like (Mobile/Stationery shredders, shears, presses and balers) used in metal and waste recycling Control, on-off and emergency shutdown (ESD) valves, positioners and other instrumentation Automation Process automation systems Control systems, specialty systems process measurement systems and analyzers Services Mining & Construction Spare parts and wear parts Engineered service Performance service Grinding mills, crushers, conveyors, screens & feeders, process equipment, recycling equipment, bulk-material handling and complete plants Machine and process upgrades, rebuilds and field services Process technology, Cost per ton & performance per ton contracts and availability guarantees Process and control optimization Automation Intelligent maintenance services Replacement products and spare parts Automation system upgrades and extensions MEO1V (ex-spinoff) registered net sales (including internal sales) of 4,567m and recurring EBITA before corporate expenses of 522m in FY12, whereas the pro-forma net sales and pro-forma recurring EBITA after corporate expenses were 4,499m and 496m, respectively, in FY12. 3

5 Metso (ex-spinoff) - FY12 net sales (including intersegmental sales) breakdown Metso (ex-spinoff) - FY12 recurring segmental EBITA breakdown 5% 0.1% 19% 19% FY12 4,567m 77% FY12 522m 81% Mining and Construction Valmet Automotive Automation Mining and Construction Valmet Automotive Automation Spinoff Entity: Valmet Corporation (VALMT) Valmet Corporation will possess the Pulp, Paper and Power segment, of the current MEO1V following the demerger, which offers its customers technologies and services to turn renewable raw materials into energy and recyclable products. The products and services of Valmet are: i) pulp mills and solutions, ii) paper, board and tissue making lines, machines and rebuilds, iii) power boiler plants, biomass power plants and rebuilds, iv) maintenance and expert services construction, and v) spare and wear parts. Valmet s customers for capital equipment include chemical and mechanical pulp producers (14% of FY12 Pulp, Paper and Power segment s net sales); paper, board and tissue producers (27% of FY12 Pulp, Paper and Power segment s net sales); and industrial power generators, municipalities and utility companies (29% of FY12 Pulp, Paper and Power segment s net sales). Further, the company also has substantial exposure to the Services business that contributes 37.0% to the FY12 Pulp, Paper and Power segment s net sales. Of the segment s total order received in FY12, 38.2% came from the high-growth emerging markets. Valmet - FY12 net sales (including inter-segmental sales) breakdown by customer type Valmet - FY12 order intake breakdown by geography 22% FY12 3,014m 37% 38% FY12 2,444m 62% 27% 14% Pulp Paper Power Services Emerging markets Developed markets 4

6 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Price Charts Metso (Pre Spinoff) Price and Moving Average Chart HEX25 (rebased to MEO1V prices) MEO1V (LHS) 200DMA 100DMA 50DMA Source: The Spinoff Report (TSR) Research, Bloomberg RSI and Volume Chart 100 5m 80 4m 60 3m 40 2m 20 1m 0 0m Volume RSI (14) on Close (MEO1V) Source: The Spinoff Report (TSR) Research, Bloomberg 5

7 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Comparison of Volatility for 30d, 60d, 90d and 200d 100% 75% 50% 25% 0% 30 Days 60 Days 90 Days 200 Days Source: The Spinoff Report (TSR) Research, Bloomberg Peer Relative Graph m m m 2.0m m m MEO1V Volume (RHS) Flsmidth & Co. Weir Grou Outotec Terex Corp Invensys MEO1V Source: The Spinoff Report (TSR) Research, Bloomberg 6

8 Spinoff Summary The Spinoff Background On October 1, 2013, Metso Corporation s Extraordinary General Meeting (EGM) approved the Board of Directors proposed plan to Spinoff Metso into two companies. Under the Spinoff plan, all of Metso s assets, debts, and liabilities relating to Metso s Pulp, Paper and Power business will be transferred to Valmet Corporation, the new company formed as a result of the Spinoff. Metso s mining and construction business and automation business will remain part of the parent, Metso. Following the Spinoff, Valmet will be a separate and independent public-listed company trading on the Helsinki Stock Exchange under the symbol VALMT. The planned registration date for the completion of the demerger is December 31, Trading of shares of Valmet Corporation on the official list of the Helsinki Stock Exchange is expected to commence on or about January 2, Distribution Ratio Under the Spinoff, Metso s shareholders will receive one share in Valmet for each share they owned in Metso as Spinoff consideration; that is, the Spinoff consideration will be issued to Metso s shareholders in proportion to their existing shareholding in Metso, a ratio of 1:1. Tax Implications Metso received a preliminary taxation decision from the Finnish Tax Administration, according to which the demerger will be treated as a partial demerger and such a partial demerger is tax neutral. Fees and Costs Related to the Demerger All costs related to the demerger will be divided between Metso and Valmet such that Metso is responsible for costs and remuneration relating to the demerger process and its completion and Valmet, for costs relating to the Listing, creation of shares in Valmet in the book-entry securities system and costs related to the commencement of Valmet s operations. In practice, Metso will pay all the costs until the Effective Date and will invoice Valmet the costs relating to the Listing after the date. Non-recurring fees and expenses payable by Valmet related to the demerger are estimated to approximately EUR20m. Accounting Treatment of the Spinoff The Spinoff will be accounted for as a disposal in accordance with IFRIC 17, Distributions of noncash assets to owners. Once the Spinoff has taken place, the difference between the fair value of the Valmet business and its book value in Metso s consolidated balance sheet will be recorded as a gain on distribution. The Valmet business to be spun off through the demerger will be presented as discontinued operations in Metso s financial reporting. Metso s ADR Metso shares are also traded as American Depository Receipts (ADR) on the International OTC (over-the-counter) marketplace, OTCQX, under the ticker symbol MXCYY. Each ADR of Metso is equivalent to one share of Metso. Note that post Spinoff Metso ADR holders will not receive any ADR of Valmet, instead will receive one share of Valmet. As a result, we expect some near-term selling pressure from ADR holders for Valmet shares. 7

9 Spinoff schedule outlay May 31 MEO1V s board approves the demerger October 1 EGM decided on the demerger December 31 Completion of the demerger January 2 Listing of Valmet on the NASDAQ OMX Helsinki March 2013 May 2013 September 2013 October 2013 December 2013 January 2014 March 25 MEO1V s board initiates the demerger process September Publish the demerger & listing prospectus December 30 Last day to buy Metso s shares and qualify for Valmet s shares Organizational structure Metso Corporation Revenue FY12: 7,504m EBITA FY12: 684m EBITA Margin FY12: 9.1% Mining and Construction Services: 48% of net sales Mining: 37% of net sales Construction: 15% of net sales Revenue FY12: 3,492m EBITA FY12: 419m (12% margin) Personnel: ~11,721 Automation Services: 45% of net sales Flow Control: 32% of net sales Process Automation Systems: 23% of net sales Revenue FY12: 859m EBITA FY12: 103m (12% margin) Personnel: ~4,100 Valmet Services: 34% of net sales Pulp and Energy: 39% of net sales Paper: 27% of net sales Revenue FY12: 3,014m EBITA FY12: 192m (6.4% margin) Personnel: ~12,000 8

10 Is MEO1V right in spinning off? Management Rationale: Value creation opportunity: MEO1V s management believes that the separation will enable both the Mining, Construction and Automation business (Parent ex-spinoff) and Pulp, Paper and Power business (Spinoff entity) to utilize faster and more efficiently their respective strengths in their target markets, which it expects to potentially result into higher valuation for shareholders. Following the Spinoff, both MEO1V and Valmet will be more transparent and focused companies and be able to dedicate financial resources to pursue appropriate growth opportunities in their respective industries. Enhance management focus: The management believes that post Spinoff, with a more focused management team, MEO1V will witness a faster decision making as well as speedier implementation of strategies. On the other hand, the new management in Valmet will formulate and implement strategies that will enable the company to achieve stronger growth and improved profitability. TSR Rationale: High-margin play: TSR believes that with the Spinoff of Valmet, MEO1V will be free from the lowmargin Pulp, Paper and Power business (contributed 40.1% to the total segmental revenue but only 20.9% to the total recurring segmental EBIT in FY12), which suffers from a weak demand for MEO1V s power plants as well as printing and fine paper machines, and would be able to focus more on its high-margin Mining, Construction and Automation business (contributed 59.9% to the total segmental revenue but 79.1% to the total recurring segmental EBIT in FY12), where the longer-term growth prospects are relatively better. Further, following the Spinoff, MEO1V will be freed from the earnings volatility of the Pulp, Paper and Power business due to its below-group margin profile, lower services exposure and a weaker earnings growth outlook. Spinoff contribution to segmental revenue - FY12 Spinoff contribution to recurring segmental EBIT - FY12 60% 79% 40% 21% Parent (ex-spinoff) Spinoff Parent (ex-spinoff) Spinoff Lack of synergies: Both MEO1V and Valmet operate in different industries with separate growth drivers and the majority of their service workshops, sales offices and manufacturing are already separated, hence we see very little synergies between both entities. Elimination of conglomerate discount: MEO1V s multi-business structure has resulted in a valuation discount to peers, which will be removed following the demerger of Valmet, thereby leading to a higher valuation in-line with the mining & construction and automotive companies. 9

11 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Activist shareholder push: After an unsuccessful attempt in 2005, Cevian Capital (the activist fund backed by Carl Icahn*), has finally been able to convince the management and other major shareholders of a Spinoff (notably; Solidium Oy, the largest stakeholder of MEO1V, with an 11.1% stake). Cevian Capital entered the stock through a purchase of a 4.0% stake in 2005 and since then has been continuously involved in talks with the management and other major stakeholders for a change at MEO1V. The fund increased its stake to 5.2% in August 2012, then to 8.3% in December 2012 and, to 10.3% in July Further, it disclosed an increase in its stake to 13.35% on August 29, * According to the Financial Times, Carl Icahn has invested $180 million in Cevian. Valuation Scenarios Historical Share Price Performance - 5 Years Scenario Analysis - Post Spinoff

12 Activist shareholder Cevian Capital Sweden-based activist hedge fund, Cevian Capital is an active ownership investment firm creating value by: (i) (ii) Acquiring substantial ownership positions in undervalued public companies and Realizing their long term value potential through active ownership. Cevian Capital manages a concentrated portfolio, with significant ownership positions in a limited number of publicly listed companies and is typically one of the largest shareholders in its portfolio companies. Cevian Capital was founded in 2002 by Christer Gardell and Lars Förberg with the launch of Cevian Capital I. In 2006, Cevian Capital raised its second fund, Cevian Capital II. Today, Cevian Capital has more than 8.5bn in assets under management. Cevian is also backed by renowned activist / value investor. Portfolio Snapshot: Cevian Capital II Fund Cevian s top five biggest stakes, in terms of the percentage of the company it owns are as follows: Name Sector Geography Stake % Filling date Entry Month Avg. entry Price Return till date % S&P Euro 350 Return % Vesuvius (VSVS - LN) Industrials Europe 21.02% 1-Oct-2013 Nov 2011 GBp % 37.8% Bilfinger Group (GBF - FF) Industrials Europe 18.87% 30-Jun-2013 Nov 2011 EUR64 27% 37.8% Tieto (TIE1V - HE) Technology Europe 15.15% 31-Aug-2013 Nov 2009 EUR15 11% 29.7% Metso (MEO1V - HE) Industrials Europe 13.35% 29-Aug-2013 Dec 2005 EUR22 37% 3.0% Panalpina (PWTN - EB) Industrials Europe 12.00% 12-Aug-2013 Jan 2010 CHF72 107% 30.7% Note: The entry month is the expected month and is based on the available fillings / news. The average entry price is the average daily close price of the respective month By analyzing the Activist s top 5 portfolio companies and their performance, we find that its industrials portfolio tends to outperform the market. Cevian s Previous Similar Deal In December 2012, Cookson Group was split into Vesuvius Plc and Alent Plc where Vesuvius was the ceramics and precious metals division of Cookson Group while Alent was the group's electronics specialist. In November 2011, Cevian disclosed that it has built a stake in Cookson, prompting talk of a break-up of the company. In November 2012, when Cookson decided to split the company into Alent and Vesuvius, Cevian backed the Spinoff. During the first quarter of 2013, Vesuvius restructured its business and exited from several non-core operations, reduced costs in its core businesses, and achieved improvements in working capital. Since the two companies were split from the Cookson Group, Vesuvius' share price has climbed 52.8%, while Alent's share price has gone up by 15.4% vs. 14.6% return given by S&P Europe 350 during the same period. Looking at this past Spinoff transaction, we note that Cevian Capital generally invests in companies overlooked or misunderstood by the market and in many instances out of favor with investors. Cevian Capital targets investments where there is a meaningful opportunity to enhance the long term value by improving corporate governance, operational performance, corporate strategy and structure. Thus, we believe Cevian s involvement in Metso s Spinoff should result in substantial upside in MEO1V as was noticed in the case of Cookson. 11

13 Key Highlights Metso (ex-spinoff) 1. Leading market positions: MEO1V occupies a strong market position in selected niches and the global market leadership in a number of areas in the Mining and Construction market, which includes the No. 1 position in grinding mills, mining crushers and metal recycling as well as No. 1-2 position in crushing and screening. In the Automation market, MEO1V possesses the No. 1 position in pulp and paper control systems as well as in pulp and paper control valves, No. 5 in oil and gas control valves, No. 4 in refining control valves and No. 7 in chemical control valves. We believe that leading positions in the key markets in the MCA business will enable MEO1V to capitalize on the long-term growth opportunities presented by these markets as shown in the table below: Services Mining Equipment Construction Equipment Automation Equipment Contributes > 2.1bn Contributes > 1.2bn 55% service intensity Contributes ~ 0.5bn 40% service intensity Contributes ~ 0.5bn 45% service intensity Market size of > 20bn Market size of > 11bn Market size of ~ 8bn Flow Control 10bn Key drivers: Demand for higher capacity potential Higher capacity utilization Key drivers: Demand for minerals Emerging market growth Urbanization, infrastructure investments Increasingly complex projects require more advanced solutions Key drivers: Infrastructure investments Emerging market growth Urbanization Key drivers: Sustainability and climate change Customers need to add production with less resources Growth in energy consumption Source: The Spinoff Report (TSR) Research, Bloomberg, Company filings 2. Growth opportunities in flow control within Automation: Metso s flow control business contributes 32% to the automation revenue and this being a product business commands higher profit margin. During 9MFY13, Metso s EBITA margin grew by 180bps to 13% at the Automation business, mainly because of the significant gross margin improvement at the flow control business. Due to the improved supply chain management and procurement savings, flow control saw strong profitability improvement. The management considers it as a lucrative market for strategic growth priorities and, hence, is targeting to become top 3 in the flow control business for oil & gas, refining and petrochemical. Oil & gas - Contributes ~40% to net sales split - Metso s Automation segment has grown its oil & gas business consistently over time at a 10-year CAGR of ~10%. Metso is one of the top 5 global players in the space and is aiming to break into top 3. The company has established strong direct sales channels and a presence with major end-customers and engineering, procurement and construction companies (EPCs). The company expects the market to grow at a 6% CAGR. Pulp & paper - Contributes ~40% to net sales split - Metso holds the No. 1 market position in this division. Despite little growth seen in the equipment business, the pulp & paper automation market is still expected to grow at a 3% CAGR. With the expectation of a 12

14 Industries limited number of new entrants and its competitors defocusing the market, Metso stands a good chance to increase its market share. Power - Contributes 10% to net sales split - Metso has established a niche market position here as well. The company has installed over 1,000 power plants globally and is having strategic partnerships in India and China for entering these markets. This division is expected to grow at a 6% CAGR. Mining - Contributes ~10% to net sales split Mining market is developing rapidly and is seeing a large demand for intelligent solutions to solve major industry challenges like Decreasing ore grade quality, more remote mine sites and scarcity of talent, etc. Metso sees this as a strategic fit to its mining business and is determined to grow further in the market. Automation CAGR Total Market Size Short-term Outlook Long-term Outlook Mining $4bn 6% Upstream and midstream O&G Downstream Industrial Gas $25bn 6% Chemical and Petrochemical $13bn Pulp & Paper $3bn 3% Power $14bn 6% In the near term, Metso expects the Mining and Pulp & Paper market segments of its Automation business to be flat but hopes O&G and Power segments to grow at a mid to high single-digit rate. The longer-term outlook is more positive for all divisions (which are expected to grow at a 6% CAGR for ), except for the Pulp & Paper division, which is expected to grow at a c3% CAGR for High contribution from Services business to offer growth & stability: Mining and Construction and Automation businesses have a high exposure to the Services business with FY12 services net sales at 2,072m (i.e. 47.6% of the total net sales of the MCA business) and FY12 services order received at 2,153m (i.e. 50.3% of the total order received of the MCA business), which stabilizes operations and helps enhance growth and margins. MEO1V has witnessed a 30.3% increase in the service net sales of MCA, from 380m in 1QFY11 to 495m in 3QFY13. Although MEO1V (ex- Spinoff) is feeling pressure from lower orders for new capital equipment that has resulted in a 10.2% y-o-y decline in net sales during 9MFY13, we believe that Metso (ex-spinoff) will benefit from the high proportion Services business, which is higher-margin, and, hence, will offset volatility in the margins of the capital equipment offerings. The management of MEO1V is focused on driving service revenue growth over the coming years and targets to achieve services sales growth of ~9% every year and increase services EBITA margin, which is nearly double the equipment margin. 13

15 E E 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 FY12 net sales mix - MCA FY12 order received mix - MCA Service revenue trend - MCA in m % 48% 50% 50% Services Capital Services Capital 4. Emerging market focus: MEO1V (ex-spinoff) has considerable presence in the emerging markets, with a 55.3% of order intake (58.5% of the Mining and Construction segment order intake and 42.1% of the Automation segment order intake are from the emerging markets) and ~54% of net sales in FY12 from these regions, which, we believe, should provide relief from slower expected growth in the European markets and prove to be an important growth driver for the company. Hence, we see the exposure to key emerging markets like China, India and Brazil should help drive revenue growth of MEO1V, even if developed markets mature. We see China as a major growth hub for MEO1V s Mining and Construction segment as well as the Automation segment in coming years, on account of increase in China s aggregate production, mainly driven by local mid-end manufacturers, continuous growth of road construction in China (increased from 3,457,000km of road in 2006 to 4,008,000km in 2010 and is expected to reach 4,500,000km in 2015) as well as large investment in railway projects (increased from 77,000km of railway miles in 2006 to 91,000km in 2010 and is expected to reach 120,000km in 2015). Aggregate market change in China (in m) 160 Mid-end market grew by almost 3 times Total road miles in China (in 000 km) 2nd largest state highway network in the world, increasing from 74,100km to 10,800km by 2015-end 4,500 3,730 3,861 4,008 3,457 3,584 Total railway miles in China (in 000 km) Plans to invest 280bn in infrastructure in the next 5 years Low End Middle End Top End 5. Strong ROCE and healthy dividend yield: During 9MFY13, Metso had an operational ROCE of 25.2% for the Mining & Construction segment and 35.3% for the Automation division. In past, Metso has been paying at least 50% of EPS in the form of dividends, which enabled the company to maintain a strong dividend yield of more than 5% in FY12. Metso s (combined) current dividend yield is higher than the dividend yield of the other industry peers like Sandvik (3.14%), Flsmidth (2.75%), Andritz (2.27%), Weir (2.00%), Outotec (2.00%), Invensys (1.91%) and Flowserve (0.98%). 14

16 Metso Outotec Sandvik Flsmidth Andritz Weir Invensys Flowserve The management of MEO1V anticipates the company to maintain a dividend yield of more than 5% following the Spinoff. Operational ROCE Current Dividend yield 50.0% 40.0% 30.0% 20.0% 47.4% 39.0% 35.3% 32.6% 33.6% 31.8% 28.7% 28.9% 24.3% 25.3% 25.2% 15.7% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 6.31% 4.23% 3.98% 3.25% 2.70% 2.06% 0.79% 0.75% 10.0% 0.0% 0.0% MFY13 Mining & Construction Automation 6. Actively looking for new growth opportunities via Acquisitions: Over the past five years, i.e. FY08 to FY12, Metso (combined) has grown at a CAGR of 5.0% and acquisitions have been an important part of its development. The company has been significantly expanding its presence through strategic acquisitions and enters into JVs wherever it finds difficulty in gaining market share organically. Recently, Metso made acquisitions with a focus on gaining a strong hold over the Chinese construction market. This was achieved through strategic partnerships and take-over agreements. Year Business Acquisitions Country EPT Engineering Services Quzhou Juxin Machinery and Quzhou Chixin Machinery (collectively called JX) Lime kiln and recausticizing business of FLSmidth Exper Tune a US-based software company India China Denmark and Sweden 75% stake in Shaorui Heavy Industries China Joint venture with LiuGong Group Corp Straight Grate Iron Ore Pelletizing technology from Jacobs Engineering Group Valstone Control Inc. Joint venture (33%) with Guodian Nanjing Automation Co. Copperstate Industrial Services The technology of Holzmag GmbH Wyesco of Louisiana L.L.C. service business Camoplast Finntrack Oy s rubber belt related business Service business of Wyesco of Louisiana L.L.C. Viconsys machine vision systems business Metso and Tamfelt enter into a Combination Agreement M&J Industries A/S, acquisition completed on Oct.7, 2009 Pacific International's coater and doctor blade business US China US South Korea China US Switzerland US Finland US Finland Finland Denmark US 15

17 Risks to Valuation Metso (ex-spinoff) Decline in Mining Capital Expenditure: Mining and Construction accounted for approximately 76.5% of Total Revenue in FY12. During 9MFY13, Metso registered 11% YoY decline in Mining and Construction revenue and 18% fall in order intake for mining equipment. Mining CAPEX has been basically the topic of the year in FY13, and it is estimated that the industry may witness a clear decline, perhaps around 20% in FY14, whereas Metso s management believes that mining capex will fall by 15% in FY14. However, the outlook beyond that is extremely uncertain and estimates vary greatly. With miners tightening their capital budgets, we expect Metso sales of new mining equipment will be pressured in the medium term. Any further deterioration of the mining market due to the ongoing consumable and spare part destocking leaves room for a significant downside. Global economic uncertainty: Financial uncertainty in the euro zone, coupled with fluctuations in exchange rates and tightening financial market regulations, may have an adverse effect on the availability of financing from banks and capital markets, and could reduce customers investment appetite and increase receivables-related risks. The company may see changes in the competitive situation of its individual businesses, such as the emergence of new, cost-effective players in emerging markets. More exposed to commodity price fluctuations: Metso s largest business segment is mining and construction, and the management has shifted its focus to this particular segment to augment its growth. Its customers include some of the largest players in mining and aggregates, and the company specializes in machines that process raw materials taken out of the ground. The management estimates that about two-thirds of its mining sales are linked to the production of iron ore, copper, and gold, hence leaving Metso more exposed to commodity price fluctuations. Business environment risks: Business cycles in the global economy and in customer industries influence the demand for MEOIV (ex-spinoff) products and services as well as financial position and the availability of financing in some customer industries. However, the company tries to mitigate, to some extent, the effects of business cycles on businesses by diversifying the geographical scope of operations, the large share of the services business and the range of customer industries. 16

18 Valuation Summary Metso (ex-spinoff) 17 We recommend a Buy on Metso Corporation (parent ex-spinoff), with a one-year base case price target of This implies an upside potential of 15.5% from the technical split price of We have valued Metso ex-spinoff on a SOTP valuation basis, using multiples based on peer group average for each segment. Valuation of Metso (ex-spinoff) based on relative valuation (in m except per share data) M&C FY14E EBIT 315 FY14E EV/EBIT 11.0x EV of segment 3,455 Automation FY14E EBIT 109 FY14E EV/EBIT 12.8x EV of segment 1,393 Combined value of business 4,848 Less: Debt 1,107 Add: Cash 509 Less: Pension Obligations 115 Total Equity value 4,135 Shares outstanding Target Value per share (in ) Current Price/Technical value Upside/Downside 15.5% Source: The Spinoff Report (TSR) Research, Bloomberg Peer Group For M&C, we have applied FY14E EV/EBIT multiple of 11.0x in-line with its peers and for Automation, we apply a multiple of 12.8x, slightly below global Automation peers average. At our current technical split price, Metso (ex-spinoff) trades at FY14E EV/EBIT of 10.1x and FY14E EV/EBITDA of 8.5x, implying a discount of ~18% and ~16% respectively to its peers group. Peer Group Matrix MEO1V (ex-spinoff) Company Mining and Construction Peers Ticker M cap in m EV in m EV/EBIT EV/EBITDA FY13E FY14E FY13E FY14E Flsmidth & Company A/S FLS 1,970 2, x 9.9x 10.2x 7.6x Sandvik AB SAND 12,366 16, x 11.7x 9.5x 8.6x Astec Industries, Inc. ASTE x 11.4x 10.0x 8.6x The Weir Group Plc WEIR 5,339 6, x 11.5x 10.2x 9.5x Outotec Oyj OTE1V 1,300 1, x 10.5x 6.0x 8.3x Terex Corporation TEX 3,264 4, x 9.6x 9.5x 7.5x Joy Global JOY 4,032 4, x 11.8x 9.8x 9.6x Komatsu 6301 JP 14,600 19, x 11.8x 8.9x 8.6x Segmental Peer Group Average 12.1x 11.2x 9.1x 8.7x Automation Peers Flowserve FLS 7,623 8, x 13.6x 13.2x 12.0x Rockwell Automation ROK 11,482 11, x 12.3x 12.4x 10.9x Invensys Plc ISYS 3,946 3, x 14.7x 14.0x 11.9x Segmental Peer Group Average 15.7x 13.5x 13.2x 11.6x Metso MEO1V 3,581 4, x 10.1x 8.7x 8.5x Peer Group Average 13.9x 12.3x 11.1x 10.1x Source: The Spinoff Report (TSR) Research, Bloomberg

19 Key Highlights Valmet (Spinoff Entity) 1. Good market positioning: Valmet Corporation is one of the two major global suppliers of equipment to the paper & pulp industry, globally. The company is at the No 1-2 position in the Pulp business as well as in paper, board and tissue, No 1-3 in the Power segment and No 1-2 in the Services business. The market believes that although the graphic paper demand is falling in Europe and North America, a 3-5% structural decline in demand in Europe, the tissue and container board demand will keep growing and the paper and board market will grow by ~3% per year over the long term, fueled by demand from the middle class in emerging economies. Services Power Pulp Board, Tissue & Newsprint 37% of net sales 22% of net sales 30% service intensity 14% of net sales 30-35% service intensity Board: 14% of net sales 50% service intensity Tissue: 7% of net sales 50% service intensity Newsprint: 6% of net sales 50% service intensity Market size of 7.0bn Market size of 2.0bn Market size of 1.4bn Market size of 2.2bn Key drivers: Customers outsourcing non-core operations Capacity utilization rates driving service demand Steady demand for rebuilds, process improvements, and maintenance services Key drivers: Growth of energy consumption Refurbishment of aging plants Incentives and regulation Source: The Spinoff Report (TSR) Research, Bloomberg, Company filings Key drivers: Growth of paper, board and tissue consumption in Asia Virgin wood pulp needed, as recycling rates cannot grow infinitely Chemical pulping growth in Asia and South America Key drivers: Packaging driven by world trade and emerging markets growth Shift from plastic packaging to renewable materials Rise in purchasing power and living standards in emerging markets Digital media decrease or suppress demand for newsprint and printing and writing papers 2. Stable services business offers more predictable and less cyclic revenue stream: Service operations have been more profitable and less cyclical than the new equipment business. The company s Services business line has a broad global customer base with over 2,000 mills purchasing services from Valmet annually. This coupled with long-term customer relationships with many of its customer s supports earnings predictability in the services business line. The projects of the Pulp and Energy business line and the Paper business line are generally long-term, taking between 12 and 24 months to complete, which enables Valmet to better estimate its future sales in the near term and plan its funding needs accordingly. Earnings predictability is further increased by the growing share of the services business that is based on long-term agreements, which are increasingly revolving or multi-year. As on September 30, 2013, Valmet s order backlog was EUR 1,658m, the large majority of which the management expects to be recognized as revenue within the next 24 months. The below table shows the exhaustive life-cycle services offering: 18

20 Category Scope Market share Competitive position Capital intensity Growth opportunity Profitability potential Spare and wear parts Original equipment manufacturer (OEM) spares Consumables High share in its own installed base Strong position in OEM parts and selected consumables Low Materials management at the mill Increasing Valmet s presence in growth markets Good Roll and workshop services Spare rolls, roll coverings, and roll services Leading global supplier Strong position in process rolls, roll coverings, and roll maintenance High Long-term agreements Roll service at mills Increasing presence in growth markets Moderate / High in certain products Mill and plant Improvements Maintenance outsourcing Improvement projects Shutdown maintenance Leading global supplier Strong position in maintenance and production development services Low High growth opportunities Increasing presence in growth markets Long-term agreements Good / Moderate Fabrics Paper machine clothing Filtration products One of the biggest suppliers Strong position in demanding paper machine applications High Long-term agreements High in certain products 3. Asset-light operative model supports return on capital and cash flow: The Pulp and Power business lines already have a relatively asset-light operating model compared to the Paper business that remains more asset-driven with the operational ROCE at 23.8% and operational EBITDA less gross capex at 181m for the Pulp, Paper and Power division in FY12. Operational ROCE - Pulp, Paper and Power segment Operational EBITDA less gross capex Pulp, Paper and Power segment (in m) 30% 25% 20% 15% 19.7% 14.5% 27.2% 23.8% % 5% 4.5% % FY08 FY09 FY10 FY11 FY12 0 FY08 FY09 FY10 FY11 FY12 19

21 4. Cost-efficiency program to boost profitability: In April 2013, Metso announced a plan to initiate a global cost-efficiency program for Valmet in order to adapt to changes in the marketplace and to improve Valmet s profitability. Structural changes in Valmet s operating environment have affected its operations and undermined its competitiveness and profitability. The management believes that the underlying reasons for this change are in the continuing downturn in demand for paper machinery and the growing trend towards solutions based on cheaper technology. In addition, the power generation sector is experiencing a slower investment cycle in Europe and a significant decrease in demand in North America due to low energy prices resulting from the increased use of shale gas. The program targets the full savings of EUR 100m to be achieved by FY16. The management estimates that approximately one-third of the savings will come from reductions in SG&A and two-thirds from COGS. These efficiency improvement actions are aimed at reaching historical margin levels, which had dropped to 4.1% in 9MFY13 from 6.4% in FY12. Through these cost savings, the management is targeting an EBITA margin level of 6-7% in the medium term. 5. New product offerings to benefit the existing installed base: Valmet has a long history of innovation for the pulp, paper and energy industries. Recently-introduced products and technology applications include gasification of biomass and waste, lignin separation technology, modular paper machines and energy-saving pulp refining technology. With its significant technological know-how, Valmet, on average, has introduced more than 70 new products to the market annually, ranging from improvements bringing significant customer benefits to the existing installed base to new innovations in new areas. Valmet s extensive intellectual property portfolio has been developed through consistent investment in research and development. 6. Strong balance sheet to support growth via acquisitions: Valmet has a strong balance sheet that enables it to participate in large projects. With a total debt of 207m and cash and cash equivalents of 203m, the company carries a marginal net debt of 4m as on September 30, This results in net gearing ratio of 0.5%, which indicates financial strength of the company. This insignificant gearing ratio in turn provides enough debt headroom to allow it to focus on growth through acquisitions and/or invest in higher ROIC opportunities. 20

22 Risks to Valuation Valmet (Spinoff Entity) Global economic scenario: Demand for Valmet s products and services depends on its customer industries, which, in turn, are affected by global economic conditions. In the Pulp and Energy business line, the management expects the demand for pulp mills and rebuilds to remain satisfactory, while that for power plants based on renewable energy sources is expected to remain weak. In the Paper business line, the management believes that structural changes in the paper industry are likely to continue and expects demand for papermaking lines to remain weak. In the Services business line, the management expects demand to be satisfactory. Turbulence in terms of global economic growth in emerging markets, particularly in China, may also cause new projects under negotiation or projects in Valmet s order backlog to be postponed, suspended or discontinued. Highly competitive markets: Valmet operates in highly competitive markets in which only a few large suppliers bid for larger orders. The company competes with European, North American and some Asian companies that are able to compete due to their low prices. Any consolidation in customer industries also results in tightened competition. Any structural changes in Valmet s operating environment may also affect its competitiveness and profitability. For example, ongoing structural changes in the paper market driven by the decrease in demand for printed media have taken place in the market and have resulted in paper production overcapacity in Europe and North America. Fixed price Contracts: Approximately 50% of Valmet s net sales during the past three years were derived from orders related to projects that typically take many months or even years to complete. The majority of these projects are based on fixed price contracts. Delay in completion of such projects results in cost overruns. The sales and operating margins realized in a fixed price contract may vary from original estimates as a result of changes in costs, especially fluctuating material costs, and productivity over the term of the contract. In addition, since certain items that Valmet supplies are outsourced, Valmet may be forced to quote at a fixed price to customers without knowing the costs of the purchased parts Fluctuations in foreign exchange rates: Valmet is exposed to foreign exchange risk in several currencies. For the nine months ended September 30, 2013, currency impact on Net sales was -7%. Valmet s main currencies for sales are the euro, the US dollar, the Canadian dollar, the Brazilian real, the Swedish krona and the Chinese renminbi. Valmet s main currencies for costs are the euro, the US dollar, the Brazilian real, the Swedish krona and the Chinese renminbi. Fluctuations in above-mentioned foreign exchange rates could have a material adverse effect on Valmet s business and results of operations. High exposure to low-growth developed markets: Valmet has larger presence in developed markets, where growth rates are expected to be stagnant, and will need to increase its footprint in China and South America to capture growth in these markets. Paper capacity in Asia is expected to grow in coming years with China, the largest paper manufacturer, plans to raise total capacity to 10mt or ~40% in the next few years. In a positive development on this front, the company recently signed its largest contract ever with a pulp-maker in Brazil. 21

23 Valuation Valmet (Spinoff Entity) We assign a Buy rating to Valmet with a one-year price target of 6.93, implying an upside potential of 12.7% from its technical split price of Relative Valuation We have valued Valmet by applying 11.0x FY14E EBIT, resulting into an enterprise value of 1,164m. After deducting the net debt of 6m and pension obligations of 120m, the target market cap would be 1,038m. We have considered diluted shares of 150m to arrive at a per share value of 6.93 post Spinoff. Valuation of Valmet based on relative valuation (in m except per share data) FY14E EBIT 106 FY14E EV/EBIT 11.0x EV of business 1,164 Less: Debt 207 Add: Cash 201 Less: Pension Obligations 120 Total Equity Value 1,038 Shares outstanding 150 Target Value per share (in ) 6.93 Current Price/Technical value 6.15 Upside/Downside 12.7% Source: The Spinoff Report (TSR) Research, Bloomberg Peers Group Company Peer Group Valuation Valmet (Spinoff) In the pulp and paper business, Andritz AG (ANDR) will be the closest listed peer with bps higher margins than Valmet Corporation. In the power generation business, Valmet will compete with The Babcock & Wilcox Company (BWC) and Foster Wheeler AG (FWLT). For Valmet (Spinoff), we have used a FY14E EV/EBIT multiple range of 11.0x, in-line with its peer average (as shown in the peer table), maintaining a slight discount to its closest peer, Andritz, owing to its better margins. Ticker M cap in m EV in m EV/EBIT EV/EBITDA FY13E FY14E FY13E FY14E Andritz AG ANDR 4,626 4, x 11.3x 10.8x 7.9x The Babcock & Wilcox Company BWC 2,724 2, x 10.9x 8.4x 7.7x Foster Wheeler AG FWLT 2,301 2, x 10.9x 9.6x 8.7x GLV GLV x 11.0x 8.9x 7.1x Valmet ex Spinoff VALMT 921 1, x 9.9x 9.8x 5.5x Peer Group Average 14.5x 11.0x 9.4x 7.9x Source: The Spinoff Report (TSR) Research, Bloomberg 22

24 Technical Split Price As per the terms of the Spinoff, Metso Corporation (MEO1V) shareholders will receive one share of Valmet Corporation (VALMT) for every share of Metso they hold on the record date (December 30, 2013). We have calculated the technical split ratio based on the average of target market capitalization and FY12 EBIT for both the entities, which equates to 79.5% and 20.5%, respectively, for Metso (ex-spinoff) and Valmet (Spinoff entity). Using this technical split ratio, we divided Metso s (pre Spinoff) market capitalization of 4,459m and arrived at the market capitalization of 3,581m and 921m for Metso and Valmet, respectively, post Spinoff. Based on the implied market capitalization and shares outstanding of both companies, we arrived at our technical split price of 23.92, and 6.15 for Metso and Valmet, respectively, post Spinoff as shown in the table below. Technical split calculation (in m except per share) Pre Spinoff share price for Metso (as on December 23, 2013) Shares outstanding 150 Market Cap for Metso (Pre Spinoff) 4,502 Metso (ex-spinoff) Implied market cap 3,581 Shares outstanding (post demerger) 150 Technical split price Valmet (Spinoff) Implied market cap 921 Shares outstanding (post demerger) 150 Technical split price 6.15, Bloomberg A price sensitivity analysis for Metso (pre Spinoff) as well as for the opening prices for both Metso and Valmet post Spinoff is carried out to give a picture on the upside to the target price at different price levels. Scenario analysis - Upside based on the different range of opening prices post Spinoff Metso (Combined) Metso ( Parent ex-spinoff) Valmet (Spinoff entity) Share Price Target Price Upside Tech. Split Price Target Price Upside Tech. Split Price Target Price Upside % % % % % % % % % % % % % % % % % % % % %, Bloomberg 23

25 Technical Shareholding Metso Corporation (MEO1V) - Pre Spinoff Index: Metso Corporation is listed on the Helsinki Exchange under the symbol ME01V. It is a part of major indices such as the STOXX Europe 600 Price Index, OMX Helsinki Index and OMX Helsinki 25 Index. ME01V has a high weight of 3.57% on the BI Global Construction & Mining Valuation Peers Index. Metso shares are also traded as American Depositary Shares (ADS) / American Depository Receipts (ADR) on the International OTC (over-the-counter) marketplace, OTCQX, under the ticker symbol MXCYY, in the US. Parametric Portfolio Associates is the largest shareholder of Metso s ADRs with 50,292 shares. Each ADR of Metso is equivalent to one share of Metso. Note that post Spinoff Metso ADR holders will not receive any ADR of Valmet; instead they will receive one share of Valmet. As a result, we expect some near-term selling pressure from the ADR holders for Valmet shares post Spinoff. Major Shareholding (Top 10): ME01V s top 10 shareholders are institutional shareholders, who, in aggregate, hold a 35.6% stake in the company. Among them, Cevian Capital is the major shareholder, holding a 13.35% stake or 20.1m shares in the company, followed by Solidium Oy and Ilmarinen Mutual Pension Insurance Company, with a 11.10% and 2.96% stake, respectively. Prominent shareholders (as of November 30, 2013) Name No. of shares held % O/s Cevian Capital (August 29, 2013) 20,068, % Solidium Oy 16,695, % Ilmarinen Mutual Pension Insurance Company 4,450, % Varma Mutual Pension Insurance Company 2,908, % The State Pension Fund 1,724, % Nordea Funds 1,586, % Keva 1,543, % Mandatum Life Insurance Company Limited 1,537, % Nordea Nordenfonden 1,516, % OP Funds 1,427, % Source: The Spinoff Report (TSR) Research, Company website Change in Shareholding: Cevian Capital, a Swedish investment fund, backed by the US billionaire Carl Icahn and Swedish fund manager Christer Gardell, is a private investment firm acquiring significant ownership positions in European public companies where long-term value can be enhanced through active ownership. In 2005, Cevian first bought a 4% stake in ME01V. On August 3, 2012, Cevian s holding increased to 5.18% in ME01V, exceeding the 5% threshold. On December 18, 2012, Cevian raised its stake further to 8.3%, which became 10.34% on July 26, 2013, as per a disclosure. Its stake rose to 13.35% on August 29, Cevian Capital expects to make a substantial profit in MEO1V as it believes that the demerger would give it potential longterm returns on its investments. Cevian Capital first proposed the Spinoff in 2005 with its entry into ME01V, but was rejected by the group s other stakeholders. However, the proposed Spinoff floated this time has been supported by major shareholders including Solidium Oy (largest owner with 11.1%), Varma Mutual Pension Insurance Company & Ilmarinen Mutual Pension Insurance Company, apart from Cevian Capital. 24

26 Name When ME01V was established in 1999, the Finnish State owned an 11.1% stake in Metso. On Dec 11, 2008, The Finnish State has transferred all its ME01V Corporation shares, which represent 11.1% of ME01V s total share capital, to the Finnish state-owned Solidium Oy as a capital contribution. After the transfer, there are no ME01V Corporation shares owned by the state. Change in Shareholding We have not seen any significant changes in the holdings of top 10 shareholders since March 31, 2013, except for Cevian Capital, who shifted from the second position to top the list by adding 3.0m and 4.5m shares during 2QFY13 (March-Jun 2013) and 3QFY13 (June-Sep 2013), respectively. During 3QFY13, Ilmarinen Mutual Pension Insurance Company also added 1.6m shares and shifted to the third position in the top 10 shareholders list with a total holding of 4.3m shares. Holding on November 30, 2013 Change in last two months Holding on September 30, 2013 Change during 3QFY13 Holding on June 30, 2013 Change during 2QFY13 Holding on March 31, 2013 Cevian Capital (Aug. 29, 2013) 20,068, ,068,239 4,528,200 15,540,039 3,031,979 12,508,060 Solidium Oy 16,695, ,695, ,695, ,695,287 Ilmarinen Mutual Pension Insurance Company 4,450, ,000 4,300,126 1,616,562 2,683, ,000 2,383,564 Varma Mutual Pension Insurance Company 2,908, ,908, ,908, ,908,465 The State Pension Fund 1,724,419 (225,581) 1,950,000 (90,000) 2,040, ,040,000 Nordea Funds 1,586,348 55,714 1,530,634 (256,658) 1,787,292 18,521 1,768,771 Keva 1,543, ,543, ,543, ,542,233 Mandatum Life Insurance Company Limited 1,537,381 (189,619) 1,727, ,727, ,000 1,525,000 Nordea Nordenfonden 1,516, ,924 1,283, , , ,959 1,768,771 OP Funds 1,427,231 (408,751) 1,835,982 (527,148) 2,363, ,172 1,632,958 Net Activity (385,313) 5,640,034 3,429,495 Source: The Spinoff Report (TSR) Research, Company website Shareholding Pattern ME01V s 54 Core Value investors and 93 Core Growth investors hold a 29.17% and 11.95% stake in the company, Index presence - TSR view respectively, signifying long-term sustainability and Positive Neutral Negative consistent growth. Shareholders using the GARP style of investing also hold a 7.57% stake in the company, indicating strong potential value in ME01V as GARP investors primarily invest in undervalued companies having solid growth potential. Additionally, index funds hold a 4.7% stake in the company. We believe, based on market capitalization described below, post demerger ME01V will remain in OMX Helsinki 25 Index with a market cap of 4.1bn. Investor style Holders Shares held % o/s Core Value 54 43,851, Core Growth 93 17,960, GARP 58 11,375, Index 26 7,061, Source: The Spinoff Report (TSR) Research, Thomson TSR sees a significant presence of long-term value investors like core growth, GARP and core value among the shareholders of MEO1V as a positive indicator of stability and solid growth potential in the company. 25

27 Valmet Corporation (VALMT) - Spinoff Listing: Valmet is expected to start trading on the Helsinki Stock Exchange under the symbol VALMT on January 2, Shareholding: Following the Spinoff, each shareholder of ME01V will receive one share of Valmet for every share they held in the company. Therefore, the ownership structure of Valmet will remain same as that of ME01V at the time of its incorporation. Index inclusion: Post Spinoff, Valmet Corporation (VALMT) will be added to S&P Europe 350, S&P Euro Plus, S&P Euro after close on December 31, Tentative OMX Helsinki 25 Index: An entry into the Index normally takes place on the second day of listing of the share. In case of non-inclusion into the OMX Helsinki 25 Index, we do not see a major selling pressure as index finds currently hold only a 4.7% stake in Metso. 26

28 Insiders Overview Management Team & Insider Holding Matti Kahkonen has been the President and CEO of ME01V since March 1, 2011 and will continue to hold the same position at MEO1V even after the demerger. He was ME01V s Executive Vice President, Deputy to the CEO and Vice Chairman of the Executive Team from October 2010 to February He was the President of Mining and Construction Technology ( ), President of Metso Minerals ( ) & President of Metso Automation ( ). Prior to that, he headed the Metso Automation Field Systems business line ( ) and served as the Division President of Neles Controls in Rauma Corporation ( ). He has a long career at ME01V, holding various management positions in the Automation as well as the Mining and Construction Technology businesses. In 2010, he successfully engineered the transformation of ME01V Mining and Construction Technology segment s way of operating to be more integrated and services driven. The company believes that under his leadership, ME01V has excellent future for continuing the strategy of profitable growth. Pasi Laine is the President of MEO1V s Pulp, Paper and Power business and will continue in this position until assuming duties of the President and CEO of the new company (Valmet Corporation). Pasi Laine has had a long and successful career at MEO1V, holding various management positions in MEO1V s Automation and Pulp, Paper and Power businesses. Hanna-Maria Heikkinen has been appointed as the Vice President, Investor Relations for Valmet Corporation. The appointment will be confirmed after receiving MEO1V EGM s approval. She will start in her new position in September 2013 and will report to the CFO. She has previously worked as the Vice President, Investor Relations at YIT Corporation, and has held a variety of positions in the banking sector. Following table shows the insider holding as of December 31, 2012 Name Designation No. of shares held Matti Kahkonen President and CEO 16,465 Pasi Laine President of Pulp, Paper and Power, ME01V s EVP and Deputy to the CEO 27 13,574 Harri Nikunen CFO 6,539 Andrew Benko President, Mining and Construction 12,286 Perttu Louhiluoto President, Automation 4,336 Merja Kamppari SVP, Human Resource 3,708 Kalle Reponen SVP, Strategy and M&A 5,741 Total 62,649 Nomination Board representatives of Metso Corporation The Nomination Board prepares proposals regarding the composition of the company Board and remuneration of its members. MEO1V s four biggest registered shareholders Solidium Oy, Cevian Capital II Master Fund L.P., Ilmarinen Mutual Pension Insurance Company and Varma Mutual Pension Insurance Company have named the following persons as their representatives in MEO1V's Nomination Board: Kari Jarvinen, Managing Director (Solidium Oy) Lars Forberg, Managing Partner (Cevian Capital) Harri Sailas, President and CEO (Ilmarinen Mutual Pension Insurance Company) Matti Vuoria, President and CEO (Varma Mutual Pension Insurance Company)

29 Variable 47% Fixed 53% Insider Activity 28 According to the NASDAQ OMX Helsinki guidelines, ME01V s insiders are not permitted to trade in its issued securities during 21 days immediately prior to the publication of a ME01V interim review or financial statements release. In the last one year, ME01V has witnessed a net buying activity of 16,521 shares on the open market, which includes a total purchase of 19,757 shares and sale of 3,236 shares. Pasi Laine (President of Pulp, Paper and Power and ME01V s Deputy CEO) and Matti Kahkonen (President and CEO) purchased 4,042 shares each on the open market at a trade price of on May 10, We notice that during the last one year, board members have, in an aggregate, bought 6,304 shares at a trade price of on April 23, On the other hand, Perttu Louhiluoto (President Automation) sold 650 shares at a trade price of on February 7, 2013 and 2,586 shares at a trade price of on May 31, Name Perttu Louhiluoto Designation President, Automation No. of shares Trade price Transaction traded ( ) date (650) Feb-13 (2,586) May-13 Merja Kamppari SVP, Human Resource 1, May-13 Harri Nikunen CFO 1, May-13 Andrew Benko President, Mining and Construction 2, May-13 Pasi Laine President of Pulp, Paper and Power, ME01V s EVP and Deputy 4, May-13 to the CEO Matti Kahkonen President and CEO 4, May-13 Eeva Sipila Director Apr-13 Jukka Viinanen Chairman 1, Apr-13 Pia Rudengren Director Apr-13 Ozey K. Horton, Jr. Director Apr-13 Erkki Pehu-Lehtonen Director Apr-13 Mikael Lilius Director Apr-13 Mikael von Frenckell Director Apr-13 Christer Gardell Director Apr-13 Total 16,521 Source: The Spinoff Report (TSR) Research, Bloomberg Compensation Structure In FY12, the total compensation paid to ME01V s executives was proportionately distributed into fixed and variable pay. The fixed pay was in the form of base salary and customary fringe benefits, such as a car and a mobile phone, and variable pay in the form of performance bonus and longterm incentives (share ownership plans). On average, all named executive officers received 47% as variable pay and 53% as fixed pay. The following table shows the compensation received by ME01V s executives in FY12 Designation Base salary ( ) Performance bonus ( ) Fringe benefits ( ) Share-based payment ( ) Total ( ) President and CEO 551, ,965 16, ,489 1,070,761 Executive Vice President 383, ,348 11, , ,847 Other Executive Team members 1,504, ,050 74, ,085 2,782,735

30 ME01V s all executive members received proportionate compensation in the form of fixed and variable pay. ME01V s president and CEO received 53% fixed pay and 47% variable pay, while its EVPs received 43% fixed pay and 57% variable pay. ME01V s all other executive officers received fixed pay of 57% and variable pay of 43%. Payment to executive members of ME01V in FY12 100% 80% 47% 57% 43% 60% 40% 20% 53% 43% 57% 0% President and CEO Executive Vice President Other Executive Team members Fixed Variable Performance bonuses: The amount of bonus paid to the executives in FY12 was based on the company s financial performances and individual achievements. The financial measures include EBITA and cash flow. For the President, CEO and other Executive team members, the maximum annual performance bonus is 40% to 60% of their annual total base salary. Share-based incentive plans: The purpose of introducing this plan is to align the goals of ME01V s shareholders and management to enhance the value of the company. The plans started in 2009, 2010 and 2011 required participants to make a personal investment in ME01V shares. For sharebased incentive plans started in 2012 and 2013, the personal investment in ME01V shares is not required; instead shares will be allocated to participants based on the achievement of predefined targets. Any shares to be potentially rewarded are acquired through public trading, and, therefore, the incentive plans will have no diluting effect on the share value. For CEO, the plan started in 2009, 2010 and 2011, annual reward payment cannot exceed his annual total salary, and his maximum bonus opportunity under the long-term incentive plan is 120% of the total annual salary. 29