Assa Abloy : Global changes paved path for merger

How did Abloy and ASSA come to the agreement to merge into one company, ASSA ABLOY, in 1994? Its origins lie in dramatically changing market conditions, which ultimately made the merger an opportunity that was too good to miss.

A deal had been in the air since the construction market was hit hard by the oil crisis in the mid-1970s. The domestic market-dependent lock companies in Europe found that the going was slow and often focused on institutional clients and specialty niches. The Nordic market offered some advantages for expansion through a merger because of shared security values, climate, building codes, and standards.

The management at Wärtsilä, which owned Abloy, began to make overtures to ASSA but discussions stalled. However dramatic events in the late 1980s put acute pressure on the Nordic lock industry. The Finnish business was severely affected by the collapse of the Soviet economy and the fall of the Berlin Wall in 1989. The Wärtsilä conglomerate merged with Lohja and changed its name to Metra and new CEO, Georg Ehrnrooth, was forced to make radical structural changes. ASSA, the largest lock manufacturer in Sweden, had been caught up in a low-intensity and largely homemade crisis for many years.

Meanwhile, Finland and Sweden decided to initiate political processes as an introduction to EU membership. This indicated that local competition would increase and become European. A Nordic lock company with a dominant position in its home market would have good opportunities to participate. There was also the more general ambition to expand in other markets outside the EU.

Discussions gather pace

Melker Schörling, CEO of Securitas (which had purchased ASSA in 1988), and ASSA's new management team made field trips to Abloy's headquarters and to the model factory in Joensuu. They were impressed and found that the Finns had made significantly more headway than they had expected. The Joensuu factory was operating according to the latest insights regarding work flows and equipment.

Against this background, Georg Ehrnrooth met with Securitas Chairman Gustaf Douglas to explore the possibility of a merger. By 1993, the market, technology, and production conditions were good. Both were eager to make a deal. The problem, as Ehrnrooth said, was that 'we agreed that ownership should be split about 60/40 - but both parties were eyeing the 60 percent stake.'

Abloy was much larger and historically had better and more stable profitability. But recently-purchased IKON in Germany was operating at a loss and the Cardkey acquisition from the same year, 1989, which dealt with future technologies, also operated with heavy losses. ASSA was therefore able to negotiate from a stronger position, at least in the short term.

A merger based on compromise

The solution was a multipart compromise that created balance over time. Metra received a 55 percent ownership stake in the newly formed company, while agreeing to reduce it to a maximum of 40 percent, which it accomplished already in 1994. Balance was also achieved by appointing Georg Ehrnrooth as Chairman, while Stockholm was chosen as headquarters.

Of utmost importance was the parties' agreement that, as was stated in the prospectus, 'The agreements between the parties are based on a transaction between equals, where no buyer or seller is specified.' This statement expresses a principle that was crucial for the future success of the Group. The entire deal rested on the concept of a merger of equals.

ASSA ABLOY's legal start date was November 7. The ASSA ABLOY share was listed on the O list of the Stockholm Stock Exchange on November 8, 1994, the date considered to be the Group's birthday.

This story is the third in a series of four about ASSA ABLOY's early years.

Read more about the history of Abloy in the article: 'Abloy - from a single lock to a Nordic leader', and about the history of ASSA in'Family entrepreneurs laid foundations for ASSA's development'. Stay tuned for the last part of our story on the way forward for the ASSA ABLOY Group.