Hello, everybody, and welcome to the press conference regarding Atlas Copco's acquisition of Edwards Group. We are very excited that you all could join us here in Sichlaug, Stockholm and as well as on the telephone and hopefully on the web. We have just heard that there are some technical problems regarding the webcast, but our IT folks are working on the issue and hopefully it will be resolved. Please make sure to call in. So hopefully, you can always hear the conference that way.
And all the presentation materials will be available on demand on the Internet as well. So just want to introduce Roni Leighton, our President and CEO. He will make a presentation and then he will take your questions. And Hans Ola Meyer, our Chief Financial Officer will also answer questions. So over to you.
Thank you, Ola. Good morning and I apologize that we do it so early on the Monday that we have on short notice this announcement. But I'm very pleased that we could do this. The announcement that we entered into an agreement to acquire Edwards, a leading company. And I will tell you a little bit more about this excited journey.
Maybe first I will start with the company. It's really a leader in vacuum products and abatement systems as they also presented on their website. For your information also this is a listed company in the NASDAQ, so you'll find all the detailed information also on their website. So that makes my communication a bit easier. It has a long legacy, the company.
It is found in 1919 in U. K. And it has a very strong technology legacy, but also a very strong embedded relation with a lot of customers. Revenue just below the GBP 600,000,000 for the Swedish around it's around SEK 6 400,000,000 in 2012. The company of a size around 3,200 people spread over 30 countries, has a very wide sales and service network.
Most of the businesses are done direct and that's also a lot of similarity with our business. So it's a direct business and they have 8 manufacturing facilities. The main ones are in Czechia, Korea and Japan and UK. And they have the technology center in UK. And as I already mentioned, I think you can find all their detailed information on the Linde website edwards vacuum.com.
So I would say, I'm very pleased that we have agreed as this company is really a technology leader and you know, APAS is since long a technology leader. So for sure, I believe that in this case, this merge could really lead to a fantastic journey in the future. A bit financials, I think that's important, especially when you go entering into a business like that. You see here over the last 5 and I say 5.5 years, it has an EBITDA, this business and okay, forget the 2,009, I think you all remember the crisis. You see that since the company has really made their move from the factories, and I will tell you a little bit more about that, I think they really come to an EBITDA level of around 20%.
And in EBIT level, if you see here on the slide, it's around 11%, 12%, but one should know that there's a lot of restructuring costs and other amortization of sellers purchase price adjustment, but then as also it said on the slide, which is around 4%. The revenue, the geographical spread, you see Asia 52% and that's mainly China, Korea, Japan and Taiwan. It's the main area there, which is I think also good because that is where the future business growth will be on earth and you have been when you listen to us in previous calls, we said that's also one of our focused areas for the next coming 10 to 20 years. U. S.
Or the Americas, it's around 1 third of the sales. So I think a normal good spread of the revenue. What is now the rationale? Why is that was scope going into vacuum? I can tell you if I take my own legacy with Atlas, I think early 2000s we had already done a deep dive into vacuum and looking into to find the right entrance point to come in because one should know that from a technology point of view the vacuum part and the compressor part, they have a lot of similarities.
And even also when it comes to the customer relations, the customers who are using it, it's a lot of similarity. I will come back later on that. But anyhow, vacuum is an attractive market segment. It still has some growth potential. And I'm sure all this and I would like to do a bet with you, if we meet each other within 10 years or 20 years, vacuum will still be on earth.
It will be a lasting technology. And one has been when you listen to us also when we talk about compressors, compressors was there 20 years, 30 years ago and it will also be there within 20 years. So that's the reason why one of the reasons why we say this is a real good business fit for us. I will not say that it is today a core business. I think it is adjacent business.
I don't want to say that it's exactly similar to compresses, but it has a lot of similarities. The second one is why this company? I already mentioned it when I was presenting the company. It is a company which is really a leader in their field. It has top products, top service and a top organization.
They really have top engineers, top people who know the application of their customers. And when we were doing the due diligence, we really were pleased and excited when we were interacting with their organization. So also that was, I think first the segment, but also the company made it really attractive. And of course, at last point, the company Edwards serves a market and industry where also Atlas Copco is walking. So many of our customers for tools or for compressors are also customers for Edwards Vacuum.
So these are mainly the basic core rationale arguments for the acquisitions. If we take now the full offer, if we really combine the Acrescope compressor offer with the Edwards compressor vacuum offer. So I will make this mistake a couple of times I think during the day now. So I should get used to the vacuum part. But you see we get a full range here.
We go from 300 compressor and bar and we go to 10 to the minus 11 minuteibars. So almost yes, the air is almost yes, the space is almost empty of any molecules when you get 10 to the minus 11. I don't think you will survive in that second. So also here we will also use the brand. As I said on the slide, we will use the brand Edwards because Edwards is a really strong brand.
It has really a reputation in the high vacuum and the medium It has that. What we are going to do is, of course, to leverage Arthroscopto's presence So I think this slide here will give once it all is set, this will give us the full attractive market offer for our customers. I already said it's a growing market. I could make this slide more or less the same for compressors. We have never done that, but I think it's more or less the same.
There are many new vacuum applications. There are many new compressor applications every day. They are coming up and that's also what we see in this market. And also we see also an increasing vacuum demand, the intensity that we see up. Like I mentioned, if you there's more and more demand for the high purity because there are new processes in place which ask for this type of technology.
So these both growth drivers will make sure that the market will keep growing. There is from the company point of view, there are sophisticated process vacuum solutions that are provided. And here on this slide, I tried to give you a bit of an insight for those who are not familiar with the company and with the business. But if you go to customers, what do you deliver? You'll deliver a vacuum pump, you deliver an abatement system and of course you deliver service.
And that's also what this company does that. And of course like it says on the slide here, the vacuum is used to create highly controlled low pressure, particular free environment. And we see more and more that there are manufacturing processes who are using that. And of course that is where the driving the growth drivers will come from. How you do that?
You have different technologies like you have been hearing me talking about scrub compressors, turbo compressors. I think you will hear us in the future talking about dry pumps, turbomolecular pumps and other vacuum pumps. Sorry for that, but that's part of the game. I will do my best to convey that message, so I will conduct some training on that part. And then we have the abatement system, which is a smaller part of the business, but I think it's not unimportant because when it comes to vacuum, you really suck.
We all know the damseugrats. We all know that being the same. I think you get exhaust and that can be contaminated air and of course that needs to be treated. And there is more and more regulations coming in place where we have to control this emission and that's the abatement system. And of course, last but not least, there is a nice recurring business.
I think it's around 27 percent of their business, which is recurring, which is service. So that also is embedded and is a look alike as we have in the compressor business. Synergies. Are there synergies between Atlas Copco and Edwards? For sure there are.
But this project is a real growth project. It's not the first priority is not is that when you normally do acquisition, you start talking about what are the cost cutting exercise, what are really the really one offs you can do on that one. In this case, there are some and I will elaborate a bit on that one. But the main driver for us is to really get synergies between the sales and service from compresses and vacuum. Like I mentioned, I think there is a lot of overlapping when it comes to usage.
So we also say here, I think we leverage customer relations between Atlas and Edwards and I think also the geographical footprint. So, Atlas is present in 178 countries. So, there's a lot of potential where we get. You have been hearing us talking about feet on the street, what does it suddenly gives them that. Of course, it will not come immediately.
This will take time because our people need to learn and get familiar with compresses that also Edwards people need to get used to the vacuum and to the compressor side just the opposite I should say. So that I think is really the driver and we believe there is a lot of potential for us to enter into this type of sales and service synergies. Another one and what made me exciting when I was reading more and more the diligence reports is the technology. The technology cross breeding from both sides. Like I already mentioned, Edwards is really a technology leader.
Atlas is a technology leader. You know that. I've been spreading that gospel many times. And we see that when you bring these 2 engineers together, we saw a lot of potential. So I'm sure within 3 to 4 years from now, you will see again a step up, which we will have done in compresses, but I'm so sure also in the packing part.
So there's a lot of potential to gain here. And of course, there are cost synergies. I think I just mentioned the delisting cost something, the financial costs. All these areas make it which is for the smaller company a burden, which is the financial cost, I think these things will go away. So that is the main one off quick gains we will get.
I'm not so sure for the quick one that we said, okay, we will get cost cutting on more people. We will close more factories and all that. Not. I think this is definitely a well run company. And they have done during the last 5 years, they have done a real strong restructuring where they moved a lot of manufacturing from West Europe to Asia and also to East Europe.
That is more or less or has more or less taken place. Of course, there are purchase synergies that will be there, but I will call it purchase and financial synergies we will have. But not really that we're going to close 2 or 3 other factories neither on the Atlas Copco side, neither on the Aqua side. Again, it is a growth project. I mentioned already, is there a lot of overlapping or similarity on the customer side?
You see here a couple of examples of segments where we are with compressors where also Edwards is with vacuum. So there is a lot. We are in semiconductors. We are in pharmaceutical. We're in medical.
Remember, we are the market leader in providing medical solutions to hospitals. I think here you are spot on with compressors and vacuum. More when we did the comparison, we think between 60% to 70% of our industrial compressor users are also using vacuum from any kind. So there is a significant overlapping on the customer side. Similarity technology, even for those who are not familiar with any of this technology or are not an engineer, you can see and this is not made up.
It's really you say one hand you have the compressor side, the other hand you have the vacuum. The technology has a lot of similarity. Are there differences? Yes, there are small differences, but I'm sure vacuum engineers understand compresses and compresses engineers understand vacuum on that one. So there's a lot of synergy because I think we have a couple of where we are really state of the art in the technology.
We also have seen that there are areas where we really can gain a lot. So these areas, yes, like I said, they look very exciting once we are together in this area. How does it look now for the group? This acquisition is around 7% for the group revenue. So it's extra comes on top of that.
You see here the report that figures to the left side of the pie chart. What does it mean? So compressors will move from 39% to 43% once we are together. And these are figures until June 2013, so 12 months moving. The rest is more or less stays more or less the same.
The transaction, so as it says in the slide, I will not read at all. We have agreed with the seller that we do once 2013 is finished and we know the income the audit income statement, we will get we will pay EUR 9.25 And depending on where they are on the revenue and on the EBITDA, we go to pay maximum of EUR 124. So in total, the share price the maximum share price could be $10,500,000 which is an enterprise value of $10,600,000 as you can see here on the slide assuming a net debt because that will develop of SEK 2,800,000,000. And of course, the transaction is only complete because it will be completed by a way of merger. So there's a whole process which will take place.
But approximately 84% of the current shareholders are really support this transaction. So on the timing point of over the loop because the announcement today that is obvious. Then the company has the obligation to have an extraordinary general meeting to vote for the deal, which will most likely take place early October. And then if everything works fine when it comes to the antitrust filing and other administrative matters, we expect to close, yes, early 2014. So that is more or less the planning.
Last slide and would like to summarize the rationale why we do it. It is a great segment to be in. Vacuum has a total, it's a $6,000,000,000 business, it's still growing. The company is a technology leader, is really one who is in the toughest markets is a leader and is also for Apascopco, a market customers at Beotov, which we know, which I know myself and you have heard me say many times when I get the question around acquisitions, what are you doing? So okay, we only buy what we understand.
If I understand it, I'm sure also there are more than 100 people and that scope who understands that. So and by this, I would say, I will be open together with Hans Ole for some questions from the audience and from the phone.
Why don't we start here in the audience if someone here has a question? Andreas Koski from Nordea. A couple of questions of the vacuum market. Firstly, if you talk about the market growth for vacuum products, would you say it's similar to the compressor markets? Or is this market growing faster?
Yes. I think if you listen to all the institutes and because that was one of the thing what because we also look in that if you take the these institutes and you also take the Bostons and the McKinsey's and others, the Baines of this world and ask them to make an estimate, you see it around 5% to around 5%, a bit more than 5%, what I say. If you take it from compresses, it more or less also comes to that hardware. But of course, one should know that you have a couple of cyclicalities in this business. We should not deny when it comes to the semiconductor business, which has another cycle than you have in general vacuum.
So that's but if you take over the business cycle that is what we have worked with.
And then on the competitive landscape, would you say this market is as consolidated as the compressor market? Or is it more fragmented and this would make it more easier to find further acquisitions in this segment?
You know, also there is not homogeneous compressor market. You have been we have low pressure, medium pressure, high pressure. You have gas and that's a bit the same what we have in the vacuum market. And that's I think one of my slides what I've tried to do a bit is to say, okay, you have the ultra high vacuum, you have the high vacuum, you have the medium vacuum and you have the rough vacuum. Depending a bit on what type of segment you are, you have more consolidation.
The more challenge it is, the more consolidation you have. And that is also where this company, Edwards, is also market leader. And then when it comes to market leader, it's a matter of, yes, getting more market share. It's a bit the same where we are with the oil free business of Ratatos Copco. It's a battle of market share, not the battle of acquisition.
When it comes to the medium and rough, I would say it's more fragmented. There are more potential, yeah, I would say acquisitions you can say or potential growth area.
And lastly, if you can mention, Advert's main competitors?
Depending again. I would say, Ibarra and I would say Garmin and Embra, if I take just 2.
Thank you.
Anyone else here in the room at the moment? Okay. Let's take questions from the phone then.
Our first question comes from Mr. Aaron Ibbitson from Goldman Sachs. Please go ahead.
Yes. Hi there. Good morning. I have several questions. So but congratulations on what seems to be a good deal.
So first question is, are there any other buyers in the wings that you're aware of? And should somebody come in with a higher bid, do you have any sort of exclusivity clauses with the board and what penalties would be and if they back away from the deal if any? And related to that, I'm just curious, since this company was IPO relatively recently, if you looked at it at the time and why you decided not to buy it then? And then I had one question on the service business. So Edwards gives some decent disclosure and they basically openly say that they only capture around 10% of the recommended service opportunity in general vacuum demand.
If you look overall in their business mix, they think that they have around 30%, 35% of the service opportunity that they capture. Is this something you've analyzed separately? And do you share that analysis? And do you think you have a room to maybe so if this is correct, double the service opportunity over the next few years? That was my initial three questions.
Thank you.
Yes, I will start with the last one. I think when it comes to service, of course, we have investigated that part because my passion for the recurring business and we looked into that also. Is that the business which we can capture? Is that the business which is really cold, cold recurring and is also sustainable profitable? And that's also what we found.
It's definitely for sure. The main service business they capture today is on the high visorption part. That's where with the Samsungs and Intels of this world, which is one of their biggest customers, that's also where they capture also the service business. So from that point of view, I think it's rather similar as we have. Yes, do they a 10% of the general vacuum?
Yes. I think you also know that we still don't have 100% of our industrial compressor service. So I'm not surprised when they say because they have a bigger challenge as standalone company to capture it, because
the
present is not as densified as our present. And if you want to capture service, you need to have a very dense network. If you don't have that, you are too expensive, yes, you will not capture it because then the customer will handle himself. So I believe really there is still potential that and that is also when I was explaining in the presentation about the synergies that is one of the synergies which we will really work on and to try to capture within the next coming 5 years.
Yes. Is it okay if I just
try to clarify? I guess you made it very clear in the beginning, which makes a lot of sense when you look at the type of acquisition that your focus is revenue synergies. So I was just hoping, if at all, you would share sort of a view that on the service side, which is currently running at something like just around SEK 2,000,000,000 maybe, Do you think you can have revenue synergies of doubling those over a 5 year period? Or do you think that's too optimistic with that Chorus Cogos higher service density? As you think, is there any type of revenue synergies that you're willing to sort of maybe share the magnitude or rather than just saying that you think they're there?
You may be and a couple other interactions, ambition, of course, where can you grow? And if you just take the similarity with the Apopscopcos compressor part, I said, if you can grow the service business 10% every year, I think you have done a great job because you should think about how many people you have to put in the field, you need to train them. So if you just make the math quickly, Arun, and you say, okay, in 5 years, you can double it, I think that I would hope to do that, but I don't believe that anyone can do it. So I think we should really have an ambition that we have a good solid growth area in the service side, but more in the high single digit level, say, maybe the 10% level, because I don't see any reason why this would be fundamentally different for the compressor business and for the vacuum business. Okay.
That's clear. Thank you.
Then I think are there other buyers? Yes. No, it's in the open. I'm sure there are other companies looking into that and I was very disappointed if some others will not look to it. There is a procedure because there are minority shareholders and of course they also have the right and we should respect the minority shareholders and they can also look into that.
So that means it's all in the public. There is a procedure to follow. We do not have exclusivity because this is legally not allowed. So I would love to have it, but I think as it is a listed company, we cannot do that. And when there is a higher bid coming, I used to say or we used to use a phrase of 1 of our previous prime ministers as a Belgian, let's solve the problem when the problem is there.
So I will quote him. So we will solve that problem when the problem is there. But I can tell you, of course, and you know me of course we have if it happens we will anticipate with the right solution. Why and then you had a second question was about the IPO. Yes.
When you have talks, I think we have never went and we have to a final negotiation previously with this company. I'm not denying that we have not looked into that because I look my first time I looked into this company in 2006 already. But at the time they the time before the IPO, I looked into and we talked, but okay, we didn't come to a dance. So yes, it was not my fault, I would say, that they didn't want to date more and I use that other verb. So I think you should I think maybe you should ask the seller why they have done that part at that time.
I think
they are better informed on that one than I was. Was.
Okay. Thank you.
Our next question comes from Mr. Guillermo Peigneux from UBS. Please go ahead.
Hi, good afternoon. It's Guillermo Peigneux from UBS. Just a couple of questions. Can I can we get any hint as to how Edwards Service business compares to yours in terms of profitability? Is it similar to the one you have in Compression Technique or is far away from it?
And then secondly, regarding the operating leverage of Edwards, can you put any framework when it comes to how vertically integrated is this business model and how we should be actually modeling this going forward in terms of drop throughs and so on?
Are you taking the operating? I would answer. Yes, on the profitability, it is a solid profitability, but also in this business as also in compresses, you also have a bit of a difference between profitability levels in certain services. I think when it comes to high end services, their premiums are better than if you do just having service people doing some regreasing where it's less profitable. But I would say the and I'm not going to give you details.
I suggest that you then talk to Matthias in that part. He will I'm sure he will love this question. I think to say that it is a solid recurring profitable business.
The operating leverage, yes. You know Atlas Copco is a very asset light company, and that's the background of your question. I would say that we now have a company that is in equal terms in the category of asset light, have a similar philosophy regarding outsourcing, regarding how what they manufacture inside and what they purchase, etcetera. And to be a little bit more specific, if you compare with Atlas Copco, the fixed asset ratio of buildings, machinery and equipment, etcetera, is slightly higher to revenue than Atlas Copco. But on the other hand, Atlas Copco is very low on that.
If you take in the working capital needs, on the other hand, it compensates. So that's why I say just as Atlas Copco is a relatively light asset model and hence the leverage when revenue and the top line goes up and down should not be dramatically different than what you can find in Atlas Copco. Okay. So yes. And we have to give more color on this, of course, when we start to consolidate this company in 2014 and then we can give more comments about this.
One thing maybe I think it's a good question. I think one thing about when you go to compare the balance sheet and you take cash like Yes.
I hope you say what I forgot to say. Otherwise, I will
complete it. No, no, you don't have. Yes.
Exactly, exactly.
When you look at that, I think if you see the last 4, 5 years, the track record on the investments and the move they have done going from the UK based manufacturing and now more Korea, Japan and Czech. So they have invested a lot in new equipment in new buildings. And of course, that is also on the balance sheet. So if you would that compare with Atlas where we have done this more or less spread over the last 10, 20 years to get a totally different asset part of that one. Is that the one?
Yes. Very good. Then we have a third one. No, we should, of course, say in relation to your first question as well, Atlas Copco has a higher to your point, a higher service to total revenue share. And that is also, of course, something that affects how the profitability varies between a high revenue year and a low revenue year.
But if we take all these three things, I think you have a good picture of it.
Yes. Thank you very much.
Thank you.
Our next question comes from Mr. Markus Almerud from Morgan Stanley. Please go ahead.
Hi, Markus Almerud here at Morgan Stanley. First of all, can you talk a little bit about the end market exposure for Edwards? And in particular, how much is semiconductors? And when looking at this slide, it seems like Edwards is more geared towards smaller applications. In terms of the technology, is it possible to use that technology to broaden the product portfolio and then to join with what you already have?
Or is it impossible? If you could just talk a little bit about that, please. And then can I just confirm, did you say there was about a third which is service for Edwards? Thank you.
Yes. I think when it comes to the end market partner, one thing is that they have a very good website and also a very good annual report, which is extremely detailed. So I would first recommend you to read it. It's good reading and then you will get Mikael, you will get more info on that. But to answer on around 45%, I think it's semiconductor.
It's around that, yes?
Yes. It's around 40%. That's what's
also Yes. I think depending on what size you are, yes. So that is where the majority of their the biggest bit I think the general vacuum is I think it's 28% to 29% or something Now what is the synergy coming back because we talked about sales and service synergies and you also heard me saying about technology synergies. Of course, that is what we will work together on it with the vacuum Edwards engineers and the compressor arthroscopic engineer is to extend the product offer. Once you know that Edwards has already a product offer for Genovacuum.
It's not that they don't have it. It's only that they have focused of course more on the semiconductor because there is the market where they are the undisputable leader when it comes to that part. And that is where their Beotope and their biggest work is. And also will be in the future. I think we will definitely keep focusing on this market more than ever.
So to have the 1st in mind, 1st in choice vision with the Intel, the TSMC and of course definitely Samsung to make sure that our customers are very successful. So that is the mission of this project is really to expand the product offer.
Any more questions from the conference call?
We have a question from Mr. Ben Maslin from Merrill Lynch. Please go ahead.
Thank you. Good morning, Ronny. Good morning, Hanzola. Few questions, please. Firstly, just coming back to 2,009 when Edwards lost money.
Even with restructuring given the semi exposure, it seems like this will be a more cyclical business than Compressor Technic is at the moment. How much do you think you can reduce that natural cyclicality using your Atlas business processes? Or should we assume CT will just be a more volatile business going forward? That's the first one. Secondly, margins, you're saying you're doing about 15% at the moment ex PPA.
Just what scope you see to improve that? On previous deals you've often given us some guidance as to whether you think you can get them up to divisional averages. What scope do you see at Edwards? And then finally Hanzola just on in terms of financing given you're buying it out of cash, just what you think the impact will be on net financial? I'm assuming it's fairly low.
And given your own PPA, what margin will the business come in the group at? Thank you.
Yes. Coming back Ben, I will take that first when it comes to 2,009. Of course, 2,009, I think you see also that the volume has dropped significant. And I think this company and other companies were not alone. Of course, there were significant restructuring costs also included at that time.
So if you recalculate it, so if a bit you would see that they still are positive. But I think what has changed between the 2,009 and today, I think the organization is much more agile. More worked more on the service side. So you hear me talking about the resilience and the agility. I think they have worked on that.
So to cope with the cyclicality, I think they are in a better shape than they were at that time because at that time they were in their move or I should say in their restructuring. So they had to focus and to stick to their mission to get the restructuring work. Unfortunately, 2,009 came in between on that. So from that point, because I look very deep into that, because I don't want to come in this type of business where we cannot find remedies for covering certain cyclicality. Now on the other hand, when we look to the cyclicality of the semiconductor market and I got the question earlier here about the growth, what we have seen is that and we all know that I think the end market, the semiconductor end markets, if you see or if you look around, if you take look back to your office 10 years ago, you had a PC.
Today, I'm sure you have much more electronic equipment. So the semiconductor market is delivering more to an end customer market, which gets more consumer driven. So that means that there is less and less cyclicality in that part. And you say you cannot show your any gadget what you say that is all in that. So that means also that the Samsung, the Intel, the TCMCs and others when it comes to their investments, of course, it's still CapEx driven, but they behave a bit different than before in that one.
So we believe giving the study we did that, okay, there will be over cyclicality. We also have that in CT. We also have that in our tools business. We have definitely that in our mine business. But I don't see that that will be significant more than we have in CT today.
Having said that and that was coming back to the previous question, Of course, our goal is to expand our business in more rough vacuum, what you can say general vacuum, which has of course is widely spread. So that is I think the second remedy or overcome part that we do. And of course then last but the least the service part which we would like to defend to develop further. Then when it comes to the margin, this is around if you take like you mentioned also if you recalculate the margin and you come back to the EBIT, I believe it is around 15% EBIT margin business. When we look forward, we will see how far we come.
I think my main objective is now is really to integrate the company and make sure I start growth projects. That is the main thing. Of course, when we work us through and we know and I think you have seen that also how we have done that with CT. Of course, when we work with the right technology leadership, we get the right pricing power, we get the right densification on the service side, margins will come. And that is I think the strategy which we will try to apply in this case.
So it's not that you will not hear me say, yes, this business will be a business within 5 years of 20%. No. I would like to see within 5 years that this business has been growing and have a solid margin of 15% and if it's more, okay, it's better. Having said that, I think one should know Ben that, of course, the first 1 or 2 years, we will invest. We will have of course extraordinary transaction costs.
Hans Ole can talk a little bit more about that. So that's for sure if you exclude these. We would like to run this company as it is and gradually start to other growth projects. That is the aim of this project.
I answer the way I heard your question then. So if I misunderstood it, please continue to question. But on what Ronny mentioned, yes, of course, we expect to see some financial synergies. And then I mean on the financials, financials, meaning that our borrowing capacity, our cost of borrowing is much lower than Edwards currently. So you can from the official numbers of Edwards and us, you can see that there is a gap of 2.5 to 3 percentage points on borrowing costs that will be nice to have.
In order to come to that situation, As Roni alluded to, there will be some transaction costs in order to get into that situation. But I see them as onetime when we do it, and we can comment more specifically on that. But on the run rate, of course, we expect to get a better financial cost situation than what the company has had today. If you look at more the profit margins on operating profit, etcetera, it's not very surprising. It's just to make the numbers, and you see that it will be dilutive to our margin, of course.
Very, very few acquisitions we have made ever that has been able to produce an accretive effect on the margin, but we make more money. And this is, of course, also a profitable company, so we will increase the profits. The effect on the group, as I said, it's pure math, but it's expected to be somewhere in the region of 1 percentage point negative effect on operating margins. And Compressor Technique in a similar way, you can make the numbers for yourself. That's a little bit how I understood your question, but please if I missed it then corrected me.
That's great. Very clear. Thanks. Thanks Ronny. Thanks Hanselo.
Thank you.
We have about 10 minutes left of the press conference. So let's see if we have any questions from inside the room here in Stockholm. Yes, one here. Thanks. My name is Jonathan from The Wall Street Journal.
You talked about this as a growth strategy mostly, but if you look at sort of how it changes both the geography and the business area of revenue, Is this a move away from mining? And is this a move away from Europe?
It's definitely not the move away from mining. So I think when we look to the different business areas, all 4 heads have the task to grow. There is no hesitation when someone come up with a good project that we say, okay, this is marketing or this is construction we don't like. I think we look definitely to the value creation opportunity, the lasting value creation opportunity. That's what we're looking at.
So that is one. And the second part is moving away from
No. Europe, yes. Once we know
that in Asia, we take just the population and the amount of people living there, I think for a company like us, a global player, Asia is a big part, is already a big part for the Atlas Copco today and it's still growing. So we keep investing in that area, in that region. So it's not just on purpose that we say, okay, we don't invest anymore in Europe. It's not true because just to give you, was it a year and a half ago, we bought SCA Sugar, which was for this business area, industrial technique, a significant investment. We keep doing it.
You see us doing businesses. We keep doing that. And of course, one should also know, Edwards has the headquarters in U. K. I don't know if you consider that as Europe, but
Yes, Mami. They have their headquarters there, but if you look at the
and where they have their market exposure
in Asia.
Yes. The market exposure is there. Of course, the Samsungs and the TCMCs are in Korea, in China and in Taiwan, that's for sure. But on the other hand, you also have Intel to take that, which is on the other side. And general, vacuum is more spread as compresses is spread.
You would see that moving on. But that is not I think when we're debating the strategy, I think I have not we don't have an opinion on what geographically. I think we look to the return on that part. I don't have an opinion if it is now with Germany or Sweden or India. I think we don't have that part.
Thank you. Unless there are any more questions here inside the room, let's go back to the phone for a last question or 2. Okay.
Our next question comes from Mr. Kenneth Tull Johansen from Carnegie. Please go ahead.
Yeah. Hi. I have a question on the longer term outlook for this acquired business. A lot of the products as I see them are quite high-tech. Do you see an opportunity to expand the product range also to let's call it simpler products in order to expand the vacuum business even more in say 2, 3 years when you have integrated this the Edwards acquisition?
Yes. I think that's definitely spot on. And when we hint to the synergies when we talked about sales and service, that's obvious, that is presence. When it comes to technology, that's definitely where we believe we could together expand our product offer. And I see a lot of similarities if we look back with Compressa, if we look back 20 years ago when we were really standing on our oil free legacy, which we still stand on, but we have been able over time to really expand our total product offer in compressor.
And I think that's what I believe we could do the same on the back end side. But it will take us time. I think this question if you would ask me again in 2 years, I will push it forward because you cannot really change that, say, the engineers because we need to have new engineers, because the engineers today are working on the semiconductor part, on the solar part, on the flat screen part. So that we need to keep because we want to stay and to grow in that business. But to expand that, I think that will take us, yes, 5 to 10 years to go on that.
And that is when you ask the long term approach, this is definitely the long term approach.
Okay. Thank you.
We have another question on the phone from Mr. Daniel Schmidt from SEB. Please go ahead.
Yes. Hello. This is Daniel Schmidt from SEB. I think most of the questions have been addressed already. Just a technical question.
Have you any sort of requirement when it comes to acceptance levels for the bid that you placed?
Sorry can you The acceptance level. There you go. I mean how many percent of the shareholders?
Exactly.
Well, the merger is such that if we have a 2 thirds majority, the deal will happen.
Okay. And you already have 84% that signed an agreement with you guys when it comes
to the vote at the AGM?
That is correct.
Okay. So the only thing that could derail it is a counter bid then, I assume?
Yes. As Ronny commented in the beginning. That's correct, yes.
Yes. Okay. Okay. Thank
you. Okay.
So all right. Let's
wrap this up then. Thank you very much everybody for coming here and for people to be listening on the phone conference as well. And all the materials will of course be available later on
the web. So thank you. Cheers. Thank you. Thank you.