Danfoss to acquire Vacon

Denmark’s Danfoss A/S has bid $1.34Bn for the acquisition of Finland’s Facon Oyj, which would result in the union of two of the ten largest variable frequency drive suppliers globally. According to Kevin Schiller of IHS, the combined low voltage drive revenue from the two companies represent over 10% of the global market value; this is slightly less than the estimated market shares for ABB and Siemens, the two largest suppliers of low voltage drives globally.

Image_VDF Market Share (2)

As the figure above indicates, both companies have strong market share in EMEA and Asia Pacific regions. The combination of the Vacon and Danfoss VFD businesses will compete heavily in these regions, where traditionally only ABB and Siemens have competed for top market share. Further, the Danfoss announcement lauds Vacon’s strengths in China, Finland, India, Italy, and the United States.

According to the Danfoss press release, the combination of the Vacon and Danfoss drive businesses is expected to create ‘a new AC drives business with the clear ambition to build a leading position in the AC drives market’. While VFD market analyst Kevin Schiller from IHS agrees that the acquisition will secure a stronger foothold for the Danfoss and Vacon drive products, the newly formed drives business resulting from the acquisition of Vacon by Danfoss will not resemble its competitors. “ABB and Siemens cultivate much of their drives business alongside their sizeable share of the integral AC motor market, and are able to offer complete system solutions across all power ranges. Conversely, Danfoss has a comparatively undersized standalone motor market share. However, with significant market share in drives integrated with motors and end equipment, the new Danfoss and Vacon integration will most likely affect the competitive landscape in lower power ranges – below 50 kW.”

Through the acquisition of Vacon, Danfoss hopes to become the leading supplier of drives within the Nordic region, which has an estimated market size of over $500m. This region is expected to grow slightly slower than the market average, at just over 7% CAGR, from 2013 to 2018. While Danfoss has traditionally concentrated on the HVAC industry, the addition of Vacon’s business will diversify sales channels and strengthen product portfolios in the power generation and building automation sectors.

The Danfoss release published on 12 September was as follows:

Danfoss announces a public tender offer for all shares of the Finnish AC drives company Vacon. Vacon shareholders are being offered a cash consideration of EUR 34 for each share in Vacon representing an aggregate equity purchase price of approximately EUR 1,038 million.

“After a careful examination of Danfoss’ offer, the Board of Directors of Vacon has unanimously decided to recommend that the shareholders accept it. Vacon is truly one of the great industrial success stories, even globally speaking. By joining forces, the two companies will create a Nordic-based global player – a new AC drives business with the clear ambition to build a leading position in the AC drives market,” says Panu Routila, Chairman of the Board at Vacon.

The background for Danfoss’ offer is the company’s strategic focus on creating profitable growth. Vacon is a good match to achieve this ambition. Today, both Danfoss Power Electronics and Vacon are significant players in the AC drives business, and together they will gain an even stronger market position.

“We have a clear strategic ambition to be one of the absolute top players in the businesses where we operate. Vacon is a very strong and innovative player and by creating this new drives business we can ensure a strong long-term growth trajectory,” says Niels B. Christiansen, CEO at Danfoss.

Vacon is a global company with exceptional R&D, production, and supply chain competences in China, Finland, India, Italy, and the United States, and a highly skilled sales and service organization in 31 countries. The company plays a crucial role in building a new AC drives business to challenge the top players in the world. Finland, as a hotspot in the global AC drives business, plays an especially crucial role and Danfoss will be positioning Finland as one of its future centers of excellence along with the other power electronics centers worldwide.

“I believe that customers will benefit significantly from the two companies joining forces as they will bring even more competitive, innovative, and attractive AC drives to the market. Today, Vacon is stronger than ever, and it has a great future ahead together with Danfoss,” says Vacon’s President and CEO, Vesa Laisi.
The offer is subject to e.g. approval by relevant authorities, such as competition authorities, and Danfoss gaining control of more than 90 percent of the Vacon shares.

A separate stock exchange release on Danfoss’ tender offer was published earlier today and can be found at http://www.vacon.com.

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