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 Sickla, outside Stockholm, as well as on the telephone and hopefully on the web. We have just heard that there are some technical problems regarding the webcast, our IT folks are working on the issue and hopefully it will be resolved. Please make sure to call in, hopefully you can always hear the conference that way, all the presentation materials will be available on demand on the internet as well. Just want to introduce Ronnie Leten, our President and CEO. He will make a presentation then he will take your questions. Hans Ola Meyer, our Chief Financial Officer, will also answer questions. Over to you.
Thank you, Ola. Good morning, I apologize that we do it so early on a Monday that we have on short notice this announcement. I'm very pleased that we could do this, the announcement that we enter into an agreement to acquire Edwards, a leading company. I will tell you a little bit more about this exciting 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 on the Nasdaq, you'll find all the detailed information also on their website, that makes my communication a bit easier. It has a long legacy, the company.
It is found in 1919 in the U.K., it has a very strong technology legacy, also a very strong embedded relation with a lot of customers. Revenue just below GBP 600 million. For the Swedish here, it's around SEK 6.4 billion 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, that's also a lot of similarity with our business, it's a direct business, they have eight manufacturing facilities. The main ones are in Czechia, Korea, Japan, and the U.K. They have the technology center in the U.K. As I already mentioned, I think you can find all their detailed information on the website edwardsvacuum.com.
I would say, I'm very pleased that we have agreed, as this company is really a technology leader and you know Atlas is since long a technology leader, for sure I believe that in this case, this merge could really lead to a fantastic journey in the future. A bit of financials. I think that's important, especially when you go entering into a business like that. You see here over the last five, I say five and a half years, it has an EBITDA, this business, okay, forget the 2009, I think you all remember the crisis. You see that since the company has really made their move from the factories, I will tell you a little bit more about that, I think they really come to an EBITDA level of around 20%.
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 the seller's purchase price adjustment within, as also it set 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. 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 10-20 years. U.S. or the Americas, it's around one-third of the sales. I think a normal good spread of the revenue. What is now the rationale? Why is Atlas Copco 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. Even also when it comes to the customer relations, the customers who are using it's a lot of similarity. I will come back later on that. Anyhow, vacuum is an attractive market segment. It still has some growth potential. I'm sure, Rolf, 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.
One, when you listen to us also when we talk about compressors was there 20 years, 30 years ago, and it will also be there within 20 years. That's one of the reason 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 compressors, 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.
When we were doing the due diligence, we really were pleased and excited when we were interacting with their organization. Also that was, I think first the segment, but also the company made it really attractive. Of course, at last point, the company Edwards serves a market and industry where also Atlas Copco is working. Many of our customers for tools or for compressors are also customers for Edwards Vacuum. These are mainly the basic core rationale arguments for the acquisitions. If we take now the full offer, if we really combine the Atlas Copco compressor offer with the Edwards Vacuum offer, I will make this mistake a couple times, I think, during the day now. I should get used to the vacuum part. You see we get a full range here.
We go from 300 compressor bar, and we go to 10 to the minus 11 millibar. Almost, yeah, 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, a second. 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 vacuum. It has that. What we are going to do is, of course, to leverage Atlas Copco's presence, and really also when it comes to the rough and medium vacuum, we'll also introduce the Atlas Copco vacuum solution range. I think this slide here, 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. Also we see also an increasing vacuum demand, the intensity that we see up. Like I mentioned, there's more and more demand for the high purity because there are new processes in place which ask for this type of technology. These growth drivers will make sure that the market will keep growing. From the company point of view, there are sophisticated process vacuum solutions that are provided.
Here on this slide, I tried to give you a bit of an insight for those who are not familiar with, first, the company and with the business. If you go to a customers, what do you deliver? You deliver a vacuum pump, you deliver an abatement system, and of course you deliver service. That's also what this company does that. Of course, like it says on the slide here, the vacuum is used and create highly controlled, low pressure, a real particular free environment. We see more and more that there are manufacturing processes who are using that. Of course, that is where the growth drivers will come from. How you do that? You have different technologies, like you have been hearing me talking about scroll compressors, turbocompressors.
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. I will conduct some training on that part 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 a vacuum, you really suck. We all know that. I think the same. I think you get exhaust and of course, that needs to be treated. There is more and more regulations coming in place where we have to control this emission, and that's the abatement system. Of course, last but not least, there is a nice recurring business.
I think it's around 27% of their business, which is recurring with the service. That also is embedded and is a lookalike as we have in the compressor business. Synergies. Are there synergies between Atlas Copco and Edwards? For sure there are. This project is a real growth project. It's not the first priority. It's not. It's that when you normally do acquisition, you start talking about what are the cost-cutting exercises, what are really the one-offs you can do on that one. In this case, there are some, and I will elaborate a bit on that one. The main driver for us is to really get synergies between the sales and service from compressors and from vacuum. Like I already mentioned, I think there is a lot of overlapping when it comes to the usage.
We also say here, I think we leverage customer relations between Atlas and Edwards, and I think also the geographical footprint. 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 certainly give them? Of course, it will not come immediately. This will take time because our people need to learn and get familiar with compressors, that also Edwards people need to get used to the vacuum and to the compressor side. Just the opposite, I should say. 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 crossbreeding 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. We see that when you bring these two engineers together, we saw a lot of potential. I'm sure within, say, three to four years from now, you will see again a step up, which we will have done in compressors, but I'm sure also in the vacuum part. There's a lot of potential to gain here. Of course, there are cost synergies. I think I just mentioned the delisting costs something, the financial cost. All these areas makes it, which is for the smaller company, a burden, which is a financial cost. I think these things will go away. 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. No. I think this is definitely a well-run company. They have done, during the last five 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 has more or less taken place. Of course, there are purchase synergies that will be there, but I would call it purchase and financial synergies we will have, but not really that we go to close two or three other factories, neither on the Atlas Copco side, neither on the Edwards 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. 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, who think here you are spot on with compressors and vacuum. When we did the comparison, we think between 60%-70% of our industrial compressor users are also using vacuum from any kind. 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, on one hand, you have the compressor side, the other hand, you have the vacuum. The technology has a lot of similarity. Are there differences?
There are small differences, but I'm sure vacuum engineers understand compressors, and compressors engineers understand vacuum. There's a lot of synergies because I think we have a couple of areas 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. These areas, 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. It's extra, comes on top of that. You see here the reported figures to the left side of the pie chart. What does it mean? Compressors will move from 39% to 43% once we are together, and these are figures until June 2013. 12 months moving. The rest stays more or less the same. The transaction.
As it says in the slide, I will not read it all. We have agreed with the seller that once 2013 is finished and we know all the income statement we will get, we will pay SEK 925 million. Depending on where they are on the revenue and on the EBITDA, we go to pay a maximum of SEK 124 million. In total, the maximum share price could be SEK 10.5 billion, which is an enterprise value of SEK 10.6 billion, as you can see here on the slide, assuming a net debt, because that will develop, of SEK 2.8 billion. Of course, the transaction will be completed by way of merger. There's a whole process which will take place. Approximately 84% of the current shareholders really support this transaction. On the timing point, how will it look? Of course, the announcement today, that is obvious.
The company has the obligation to have an extraordinary general meeting to vote for the deal, which will most likely take place early October. If everything works fine when it comes to the antitrust filing and other administrative matters, we expect to close early 2014. That is more or less the planning. As last slide, would like to summarize the rationale why we do it. It is a great segment to be in. Vacuum as a total, it's a $6 billion 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 Atlas Copco, a market. Customers at the top, which we know, which I know myself, and you have heard me say many times when I get a question around acquisitions, what are you doing?
Say, okay, we only buy what we understand. If I understand it, I am sure also there are more than 100 people in Atlas Copco who understand that. By this, I would say I will be open together with Hans Ola 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. First, if you talk about the market growth for vacuum products, would you say it's similar to the compressor market, or is this market growing faster?
Yeah. I think if you listen to all the institutes, because that was one of the things, of course, we also look in that if you take these institutes and you also take the Bostons and the McKinseys and other Bains of this world and ask them to make an estimate, you see it around 5%, a bit more than 5%, what they say. If you take it from compressors, it more or less also come to that part. 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. If you take over the business cycle, that is what we have worked with.
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 easier to find other acquisitions in this segment?
There is not a homogeneous compressor market. We have low pressure, medium pressure, high pressure, you have gas, and that's a bit the same as what we have in the vacuum market. 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 challenging it is, the more consolidation you have. That is also where this company, Edwards, is also market leader. When it comes to market leader, it's a matter of getting more market share. It's a bit the same where we are with the Oil-free business of Atlas Copco. It's a battle of market share, not a battle of acquisition.
When it comes to the medium and rough, I would say it's more fragmented. There are more potential, acquisitions you can say, or potential growth areas.
Lastly, if you can mention Edwards' main competitors?
Depending, again, I would say Ebara, and I would say Gardner Denver. If I take just two.
Thank you. Anyone else here in the room at the moment? Let's take questions from the phone then.
To ask a question, please press 01 on your telephone keypad. Our first question comes from Mr. Aaron Ibbotson from Goldman Sachs. Please go ahead.
Yes. Hi there. Good morning. I have several questions. Congratulations on what seems to be a good deal. First question is, are there any other buyers in the wings that you're aware of? Should somebody come in with a higher bid, do you have any sort of exclusivity clauses with the board, and what penalties would be if they back away from the deal, if any? Related to that, I'm just curious, since this company was IPOed relatively recently, if you looked at it at the time and why you decided not to buy it then. Then I had one question on the service business. Contrary to Atlas Copco, 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, if this is correct, double the service opportunity over the next few years? That was my initial three questions. Thank you.
Aron. Yeah, I will start with the last one. I think when it comes to service, of course, we have investigated that part because you know 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 "recurring" and is also sustainable, profitable? That's also what we found. It's definitely for sure. The main service business they capture today is on the high vacuum part.
Yeah.
That's where with the Samsungs and Intels of this world, which is one of their biggest customers, that's also where they captured also the service business. From that point of view, I think it's rather similar as we have. Do they capture 10% of the general vacuum? I think you also know that we still don't have 100% of our industrial compressor service. I'm not surprised when they say, because they have a bigger challenge, a standalone company to capture it, because their presence is not as densified as our presence. If you want to capture service, you need to have a very dense network. If you don't have that, you are too expensive. They are too expensive. You will not capture it, because then the customer will handle it himself.
That's fair.
I believe really there is still potential. 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.
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. I was just hoping if at all you would share a view that on the service side, which is currently running at something like just around SEK 2 billion maybe. Do you think you can have revenue synergies or doubling those over a 5-year period, or do you think that's too optimistic with Atlas Copco's higher service density? 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 maybe, a couple other interactions which we have been talking about service and when you were asking the ambition, of course, where can you grow? If you just take the similarity with Atlas Copco's compressor part. I said, if you can grow the service business 10% every year, I think they've done a great job, because you should think about how many people you have to put in the field. You need to train them. If you just make the math quickly, Aron, and you say, okay, in 5 years you can double it. I would hope to do that, but I don't believe that anyone can do it. 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 the 10% level.
I don't see any reason why this would be fundamentally different for the compressor business and for the vacuum business.
That's clear. Thank you.
I think other buyers. Now it's in the open. I'm sure there are other companies looking into that, I was very disappointed if some others will not look to it. There is a procedure because there are minority shareholders, of course, they also have the right, we should respect the minority shareholders, and they can also look into that. 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. I would love to have it, but I think as it is a listed company, we cannot do that.
When there is a higher bid coming, I used to say, or we used to use a phrase of one of our previous prime ministers as a Belgian, he said, "Let's solve the problem when the problem is there." I will quote him. We will solve that problem when the problem is there. I can tell you, of course, and you know me, of course, if it happens, we will anticipate with the right solution. Why? Then you had a second question was about the IPO. When you had talks, I think we have never went near to a final negotiation previously with this company. I'm not denying that we have not looked into that because my first time I looked into this company in 2006 already.
At the time before the IPO, I looked into, we talked, but okay, we didn't come to an end. Yeah, it was not my fault, I would say, that they didn't want to date more, if I use that other verb. I think maybe you should ask the seller why they have done that part at that time.
Okay. That's very clear.
They're better informed on that one than I was.
Okay. Thank you.
Our next que-.
I think that was it. Yep.
Our next question comes from Mr. Guillermo Peigneux from UBS. Please go ahead.
Hi. Good afternoon. It's Guillermo Pena from UBS. Just a couple of questions. 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 Compressor Technique, or is far away from it? 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 leverage? I would answer that. Yeah, on the profitability, it is a solid profitability, but also in this business, as also in compressors, 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. I would say the, and I'm not going to give you details. I suggest that you then talk to Mattias in that part. I'm sure he will love these questions. I think to say that it is a solid, recurring, profitable business.
Maybe on operating leverage, yeah. You know Atlas Copco as a very asset-light company, and that's the background of your question.
Yeah.
I would say that we now have a company that is in equal terms in the category of asset light and a similar philosophy regarding outsourcing, regarding what they manufacture inside and what they purchase, et cetera. To be a little bit more specific, if you compare with Atlas Copco, the fixed asset ratio of buildings, machinery and equipment, et cetera, is slightly higher to revenue than Atlas Copco. On the other hand, Atlas Copco is very low on that.
Yeah.
If you take in the working capital needs on the other hand, it compensates. That's why I say, just as Atlas Copco, it's 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.
Oh, okay.
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 good comments about it.
One thing maybe, I think it's a good question, Emil. I think one thing about when you go to compare the balance sheet and you take Atlas
Yes. I hope you say what I forgot to say, otherwise I will complete it.
Yeah, yeah.
No, no, you go ahead.
That's the reason we are two here.
Exactly.
When you look at that, I think if you see the last four or five years, the track record on the investments and the moves they have done going from the U.K.-based manufacturing and now more Korea, Japan, and Czech. They have invested a lot in new equipment, in new buildings, and of course, that is also on the balance sheet. If you would then compare with Atlas, where we have done this more or less spread over the last 10, 20 years.
Correct
you get a totally different asset part on that one.
Yeah.
Is that the one?
No. Very good. We have a third one. We should, of course, say in relation to your first question as well, Atlas Copco has, to your point, a higher service to total revenue share. That is also, of course, something that affects how the profitability varies between a high revenue year and a low revenue year. If we take all these three things, I think you have a good picture of it.
Yeah. Thank you very much.
Thank you.
Our next question comes from Mr. Marcus Almerud from Morgan Stanley. Please go ahead.
Hi, Marcus Almerud here, Morgan Stanley. First of all, can you talk a little bit about the end market exposure for Edwards and any in particular, how much is semiconductors? When looking at this slide, this 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. Can I just confirm, did you say that was about a third, which is service for Edwards? Thank you.
Yeah. I think when it comes to the end market part, one thing is that they have a very good website and also a very good annual report, which is extremely detailed. I would first recommend you to read it. It's good reading, and then you will get more info on that. To answer your, they're around 45%, I think it's semiconductor. It's around that, yeah.
Yeah, it is around 40% that it is also based around.
Yeah, 40%. I think depending on what side you are.
Yeah.
That is where the majority of their, the biggest bit, I think the general vacuum is, I think it is 28%-29% or something like that. 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 Edwards vacuum engineers and the Atlas Copco compressor engineer is to extend the product offer. Once you know that Edwards has already a product offer for general vacuum, it is not that they do not have it. It is only that they have focused, of course, more on the semiconductor, because there the market where they are the undisputable leader, when it comes to that part, and that is where their biotope 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. To have the first in mind, first in choice vision with the Intels, the TSMC, and of course, definitely Samsung, to make sure that our customers are very successful. 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 Maslen from Merrill Lynch. Please go ahead.
Thank you. Morning, Ronnie. Morning, Hans Ola. A few questions, please. Firstly, just coming back to 2009 when Edwards lost money. Even with the structuring, given the semi exposure, it seems like this will be a more cyclical business than Compressor Technique is at the moment. How much do you think you can reduce that natural cyclicality using your Atlas business processes, or should we assume that CT will just be a more volatile business going forward? That's the first one. Secondly, margins. You're saying it's 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?
Finally, Hans Ola, just on 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. Given your own PPA, what margin will the business come in the group at? Thank you.
Coming back, Ben, I will take that first when it comes to 2009. Of course, 2009, I think you see also that the volume has dropped significantly. I think this company and other companies were not alone. Of course, there were significant restructuring costs also included at that time. If you recalculate it, so with EBIT, you would see that they still are positive. I think what has changed between the 2009 and today, I think the organization is much more agile. I think also they have worked more on the service side. You hear me talking about the resilience and the agility. I think they have worked on that.
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. They had to focus and to stick to their mission to get the restructuring work. Unfortunately, 2009 came in between on that. From that point, because I looked 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. On the other hand, when we look to the cyclicality of the semiconductor market, and I got a 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 look around, if you look back to your office 10 years ago, you had a PC. Today, I'm sure you have much more electronic equipment. The semiconductor market is delivering more to an end customer market which gets more consumer driven. That means that there is less cyclicality in that part. Yeah, you say you cannot show your-
Any gadget
your any gadget, what you say, that is all in it. That means also that the Samsung, the Intel, the TSMCs, and others, when it comes to their investments, of course, it's still CapEx risk, but they behave a bit different than before in that one. We believe giving the study we did that, okay, there will be always cyclicality. We also have that in CT. We also have that in our tools business. We have definitely that in our mine business. 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 of course, is widespread. That is, I think the second remedy or overcome part that we do.
Of course, last but not least, the service part, which we would like to plan, to do, to develop further. 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 a 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. That is, I think, the strategy which we will try to apply in this case. You will not hear me say, "Yeah, this business will be a business within five years of 20%." No. I would like to see in five years that this business has been growing and at a solid margin of 15%, and if it's more, okay, it's better. Having said that, I think one should know then that, of course, the first one or two years, we will invest. We will have, of course, extraordinary transaction costs. Hans Ola can talk a little bit more of that.
That 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. If I misunderstood it, please continue to question. On what Ronnie 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. 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 Ronnie alluded to, there will be some transaction costs in order to get into that situation, but I see them as one time. When we do it, and we can comment more specifically on that.
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, et cetera, it's not very surprising. It's just to make the numbers, and you see that it will be diluted to our margin, of course. Very few acquisitions we have made ever that has been able to produce an accretive effect on the margin, but we make more money. 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 maths, but it's expected to be somewhere in the region of a percentage point negative effect on operating margins, and Compressor Technique, in a similar way, you can make the numbers for yourself.
Yeah.
That's a little bit how I understood your question, please, if I missed it, then correct me.
No, that's great. Very clear. Thanks Ronnie. Thanks Hans Ola.
Thank you. We have about 10 minutes left of the press conference. Let's see if we have any questions from inside the room here in Stockholm.
Yep. One here.
Yeah.
Thanks. My name is Jonas. I'm from The Wall Street Journal. If you look at how it changes both the geography and the business area of revenue, is this a move away from mining, is this a move away from Europe?
It's definitely not a move away from mining. I think when we look to the different business areas, all four heads have the task to grow. There is no hesitation when someone come up with a good project that we say, "Okay, this is mining," 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. That is one, The second part is moving away from.
Asia.
No.
Europe, yeah.
One should know that, in Asia, if 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. It's already a big part for Atlas Copco today, and it's still growing. We keep investing in that area, in that region. 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 Schucker, which was for the business area Industrial Technique, a significant investment. We keep doing it. You see us doing businesses. We keep doing that. Of course, one should also know Edwards has a headquarters in U.K. I don't know if you consider that as Europe, but
Yeah, well, I mean, they have their headquarters there.
Yeah
If you look at where they have the market exposure.
Yeah.
it's mostly in Asia.
Yeah. The market exposure is there. Of course, the Samsungs and the TSMCs are in Korea, in China, and in Taiwan. That's for sure. On the other hand, you also have Intel, to take that, which is on the other side. In general, vacuum is more spread as compressors spread. You will see that moving on. I think when we're debating the strategy, 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 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 two. Okay, back.
Our next question comes from Mr. Kenneth Toll Johansson 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, two, three years when you have integrated the Edwards acquisition?
Yeah. I think that definitely spoke on. When we hint to the synergies, when we talked about sales and service, that's obvious that is present. When it comes to technology, that's definitely where we believe we could together expand our product offer. I see a lot of similarities if we look back with compressors, if we look back 20 years ago when, let's say, 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 the compressor. I think that's what I believe we could do the same on the Vacuum side. It will take us time.
I think this question, if you would ask me again in two 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. That we need to keep because we want to stay and to grow in that business. To expand that, I think that will take us five to 10 years to go on that. 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 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've placed?
Sorry, can you-
Acceptance level.
I mean, how many % of the shareholders?
Exactly.
Well, the merger is such that if we have a two-thirds majority, the deal will happen.
Okay, you already have 84% that signed an agreement with you guys when it comes to the vote at the AGM.
That is correct.
Okay, the only thing that could derail it is a counter bid then, I assume.
Yes, as Ronnie commented in the beginning. That's also correct, yes.
Yeah. Okay. Thank you.
Okay.
All right.
Right on time
Wrap this up then. Thank you very much, everybody, for coming here and for people who are listening on the phone conference as well. All the materials will, of course, be available later on the web. Thank you.
Thank you.
Thanks.