IT'S OURS NOW: The purchase of Silja Line, a large company in terms of sales, by Tallink will go down in Baltic history as one of the great business transactions of the post-independence period.
TALLINN - Estonia's shipping line Tallink signed a deal on June 11 to purchase Finland's Silja Line for 450 million euros and 5 million ordinary shares in what is being described as "the most resounding deal in Baltic economic history." The deal will create one of Europe's largest shipping lines and the dominant company in the regional industry, as Silja controls the leading position between Finland and Sweden and Tallink between Estonia and Finland, Estonia and Sweden and Latvia and Sweden.
The transaction includes six of the eight ships up for sale by Sea Containers, Silja Line's parent company, and Tallink officials announced they would continue to operate under the Silja brand and that ships would continue to sail under their current flags with existing officers and crew.
Enn Pant, chairman and CEO of Tallink, said that the acquisition would help Tallink form the leading shipping company in the Baltic Sea area, which has been the company's strategic vision.
"Tallink's bold and successful growth strategy is boosted by Silja Line's long history, valuable brand and outstanding professionals. This transaction is firmly founded in our conviction that clients, employees and shareholders will benefit from the integration of these two shipping companies," he said.
Silja Line chairman Antti Pankakoski also applauded the deal.
"We can now start actively developing business and the brand and open the whole Baltic Sea to our clients. As a dynamic and expanding part of the group, we will be in a good position to provide the marketing expertise and know-how we have accumulated from Finnish and Swedish routes and from the sale of our services on European and international markets," he said.
Economic Affairs Minister Edgar Savisaar said that by purchasing the Finnish Silja Line, Tallink had made the most resounding deal in Baltic economic history.
Savisaar said that the team, headed by Enn Pant, Ain Hanschmidt and Toivo Ninnas, had raised the Estonian flag to a place of dignity in the Baltic. The minister said Tallink had walked a self-styled path, surprising the investment public with a 1 billion kroon (64 million euro) investment or expansion project almost every year.
"In the course of such impressive development, Tallink has created thousands of new jobs, made investments of well over 10 billion kroons, and has brought millions of passengers to Estonia," the minister said.
The deal will have to be endorsed by Estonia and Finland's competition authorities by July 28.
As part of the agreement, Tallink will pay 450 million euros and 5 million common shares in Tallink, to be issued later, to Sea Containers for 100 percent of Silja Holdings Limited, as well as 100 percent of Silja Oy Ab.
The 450 million euro deal will be financed through a combination of Silja's existing debt refinancing and external bank loans worth up to 400 million euros and approximately 60 million euros in equity. In addition, 5 million new ordinary shares are to be issued to Sea Containers upon completion of the transaction. Tallink also expects to offer additional shares to existing shareholders in order to raise another 50 million euros.
Tallink's biggest institutional investors have expressed readiness to endorse a successful offering of the new shares to existing shareholders, a company spokesperson said.
Tallink made its initial public offering of shares at the end of last year, with the price of the shares established at 82.5 kroons (5.27 euros). The share price has since fallen and remains in negative territory.
The transaction does not include Silja Line's fast ferry services from Helsinki to Tallinn and the two SuperSeaCat fast ferries that also operate on the route. The transaction also excludes Silja's legacy vessels (Walrus, Opera and Finnjet).
In 2005, revenues of the business sold to Tallink amounted to 380 million euros.
Analysts praised the deal. Arko Kurtmann, an analyst at Suprema, an investment bank, said the purchase was "good news" for Tallink shareholders. "Particularly if we consider that Tallink had the opportunity of giving up its fast boat traffic between Tallinn and Helsinki and acquire the so-to-say tidbits, the six ships sailing on the Baltic routes with the highest number of passengers," he said.
"The investment is naturally connected with risk, but considering that restructuring is underway in Silja Line, and Tallink is also carefully checking its expenses, we see the near future in a positive light and believe that EBITDA [operating profit] on the route between Finland and Sweden will grow," Kurtmann said.
Suprema found that the price Tallink paid was justified. "Considering that the heads of Tallink control the majority holding in the company, the risk of overpayment is smaller," Kurtmann said.
The Tallink Grupp is a rapidly growing shipping company operating 15 vessels in the Baltic Sea region and providing cruise and passenger transport as well as cargo services.
In the financial year ending Aug. 31, 2005, the company transported a total of more than 3.2 million passengers. Revenue amounted to 260 million euros.
