Investment Dizzying rewards and shotgun estimates of the share price – Ahlstrom-Munksjö’s arbitration was a unique investor drama in Finland.

What is extremely shallow but terribly wide? Professor Seppo Ikäheimon valuation.

The joke circulating in investor circles stems from the takeover bid of the fiber company Ahlstrom-Munksjö and the subsequent arbitration proceedings. This arbitration was in many ways exceptional, both in terms of the case at hand, the valuation of the experts and the costs of the proceedings.

Before delving into the special arbitration, it is appropriate to briefly recap how this point was reached.

The investment companies of Ahlström and Ehrnroothie and the private equity investor Bain Capital made a takeover bid for the shares of Ahlstrom-Munksjö listed on the Helsinki Stock Exchange in the autumn of 2020.

The takeover bid and events during the bidding process raised dissatisfaction among many of the company’s minority shareholders. Among other things Finnish Share Savers strongly criticized the buyer.

Buyers acquired a 90 percent stake in Ahlstrom-Munksjö in early 2021, and the company delisted from the Helsinki Stock Exchange a few months later.

Following the completion of the tender offer, the minority shareholders took the matter to arbitration.

The arbitration was about big money. A trustee overseeing the interests of passive minority shareholders estimates that the dispute involved about € 100 million. Fewer disputes have been made.

Under the law, minority shareholders are entitled to a “fair price” for their shares in a redemption situation. Among other things, the arbitral tribunal had to rule on this.

But what is the fair price?

The answer to this question can be found in finance. Based on the professorial evaluations presented in the arbitration, one could also talk about the art of finance.

Thus, based on the analysis of the age family, Ahlstrom’s share price could be too high 50 percent even in the midst of a full stock market crash.

In the arbitration court, both the plaintiff (the buyers, ie Ahlströmit, Ehnroothit and Bain) and the defendants (dissatisfied minority owners) summoned a professor at Aalto University to testify. The buyer’s expert was a professor of accounting Seppo IkäheimoProfessor of Finance on the minority side Vesa Puttonen. In addition, the parties asked the investment bankers for estimates of the current share price.

The views of experts differ almost invariably in court depending on which party has called the expert as a witness.

This time, the differences in the views of experts were like a shotgun shot.

Maybe six euros, maybe 28 euros. Maybe something in between.

Especially Professor Ikäheimo’s valuations were startling. First, they were very shallow.

Ikäheimo submitted two different price brackets for Ahlstrom-Munksjö’s share in the arbitration proceedings. According to him, the fair price of Ahlström-Munksjö’s share in September 2020 at the start of the tender offer was EUR 4.04–8.97.

Ahlstrom-Munksjö’s share price at that time was around 15 euros, almost 300 percent higher than Ikäheimo’s Lowest estimate.

The specialty of Ikäheimo’s assessment is indicated by the fact that Ahlstrom’s share price hit a low of around eight euros in the spring of 2020. Thus, based on the analysis of the age family, Ahlstrom’s share price could be too high 50 percent even in the midst of a full stock market crash.

According to Ikäheimo, the fair price of the share was EUR 6.07–12.05 when the tender offer was executed in March 2021. The tender offer was EUR 17.84.

In other words, Ikäheimo believed that buyers made the investment scandal of the century and paid Ahlstrom almost three times the fair value at fair value.

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“Ikäheimo has ended up with a fundamentally different level of valuation from other experts,” the arbitrators noted in the explanatory memorandum.

Another special feature in Ikäheimo’s estimates was the ranges. The differences between minimum and maximum prices were vastly large.

Vesa Puttonen.

Large price ranges would be understood if it were a company that would be difficult to value. Such could be, for example, a fast-growing technology company or a startup.

Ahlstrom-Munksjö is not a startup. It is a traditional manufacturing company with roots dating back to the 19th century.

Minority shareholders Professor Vesa Puttonen, an expert, invited Ahlstrom-Munksjö to set the fair price in the range of EUR 24.38–28.32. On that basis, the tender offer of EUR 17.84 was therefore clearly too low.

It is interesting in the case that Professor Puttonen and Professor Ikäheimo are leading Finnish experts when considering the valuation of shares.

They come from the same school. They have read the same books and know the same theories. They even have joint scientific publications.

And what do they say about the current price of a Ahlstrom-Munksjö share? Maybe six euros, maybe 28 euros. Maybe something in between.

Puttonen and Ikäheimo did not want to comment on the matter to HS Visio. Ikäheimo also did not want to send his calculations, which were the basis for the valuation, to the delivery.

Second an exceptional feature of the Ahlstrom-Munksjö arbitration proceedings was the costs of the proceedings.

In arbitration, the arbitrators shall determine the appropriate remuneration for themselves. According to the law, the compensation of the arbitrators must be reasonable, taking into account the time required for the task, the difficulty of the case and other relevant factors.

Hopefully, in connection with the case, Timonen has also had time to do his day job as the Chief of Staff of the Ministry of Justice.

The chairman of the arbitral tribunal was Pekka Timonen. He raised a reward of 300,000 euros. Members of the arbitral tribunal Kari Lautjärvi and Carita Wallgren-Lindholm each received EUR 150 000 for the contract.

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Ahlstrom-Munksjö’s takeover bid with its redemption process was an exceptionally complex entity, not all of the intricacies of which are worth going through in this article. It should be noted that there were many precedent-setting issues on the agenda.

The process certainly required more work for the board members than usual. The judgment and its reasoning may be used in future legal proceedings. The arbitration award is a 237-page nivaska.

Hopefully, in connection with the case, Timonen has also had time to do his day job as the Chief of Staff of the Ministry of Justice. The salary for that task is 150,000 euros per year.

Pekka Timonen did not want to comment on issues related to the arbitration proceedings.

The arbitration court confirmed the redemption price of Ahlstrom-Munksjö’s shares at EUR 21.55, which was 21 percent higher than the original tender offer.

The award of the arbitral tribunal shall not be final. If the buyer, one of the minority owners, or a trustee appeals the decision, the matter goes to the district court.

If there is no complaint, the redeemers will pay the minority shareholders approximately EUR 40 million more than they initially expected based on the tender offer.

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