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Announcement:

Moody's says: No change to Assa Abloy's P-2 rating following Cardo announcement

14 Dec 2010

Approximately SEK1.9 billion short-term financial debt affected

Frankfurt am Main, December 14, 2010 -- Moody's comments on Assa Abloy's takeover of Cardo. Yesterday Assa Abloy announced (i) the acquisition of a majority of the shares in Cardo AB and (ii) the launch of a recommended public offer to the remaining shareholders of that company. The announcement, which followed the agreement with several large shareholders in Cardo representing 63.6% of the share capital, to sell their shares to Assa Abloy, values the company at SEK11.3 billion (around EUR 1.2 billion), which equals a premium of c. 48% on last Friday's closing price. The transaction, which is still, amongst others, conditional upon necessary approvals and clearances from the competition authorities, has found the unanimous support by Cardo's Board of Directors.

Assa Abloy views Cardo's Entrance Solutions business (c. 57% of Cardo's sales during the first nine months of 2010) as a good strategic fit into its own Entrance Systems division. The combination of these activities is expected to strengthen Assa Abloy's product offering and to leverage its global organization and distribution network. Substantial synergies are expected to be achieved over a three year horizon with regard to service offerings, sales and cost. Cardo's other activities, Cardo Flow Solutions and Lorentzen & Wettre, however, do not fit well into Assa Abloy's operations so that the company announced that it will look into various alternatives for these activities following the acquisition.

In its assessment of the contemplated transaction, Moody's agreed to the strategic rationale behind the transaction, which, however gives a high multiple for Cardo resulting in a substantial increase in Assa Abloy's leverage exceeding 3x Debt / EBITDA on a pro-forma basis. Going forward, the rating agency expects Assa Abloy to partially reverse the SEK11.3 billion debt increase resulting from this transaction via the disposal of non-core activities as well as free cash flow generation. Assa Abloy will need to demonstrate its ability to smoothly integrate Cardo into its operations, reap the expected synergies and to dispose Cardo's other activities not fitting into its portfolio. Moody's has also affirmed the existing guidance for the current rating category but is of the opinion that the company should be able to meet such metrics within the next 18 months. Nonetheless any indication, that EBITA margins deteriorate significantly below the historical level in the mid teens or that Assa Abloy may be unable to manage over the next 18 months funds from operations coverage above 23% of debt and retained cash flow coverage above 17% of net debt on a sustainable basis would increase pressure on the ratings. Moody's also notes that Assa Abloy has arranged financing which should ensure adequate liquidity to cover for this acquisition. Likewise a continuation of the heightened acquisition activity would be negative to the ratings as the company has currently minimum flexibility within the category beyond bolt-ons.

Headquartered in Stockholm, Sweden, Assa Abloy is a leading supplier of locking solutions with a world market share of approximately 10%. The group sells security solutions under a broad range of brand names and through its various distribution channels both in mature and developing markets. The group has three major product lines: (i) mechanical locks, lock systems and accessories, (ii) electromechanical and electronic locks and (iii) security doors and fittings. In 2009, the group generated revenues of SEK35 billion, with Europe representing nearly half of it, followed by North America and a growing share from emerging markets.

Cardo AB, headquartered in Malmö, Sweden, is a leading supplier of industrial doors and logistic systems, wastewater treatment systems, process equipment for the pulp and paper industry and garage doors. The company generated revenues of c. SEK 9 billion with about 5,400 employees.

Frankfurt am Main
Oliver Giani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's says: No change to Assa Abloy's P-2 rating following Cardo announcement
No Related Data.
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