* New JV will be jointly held by Hydro and Orkla
* Aims to cut costs amid global downturn
* Orkla shares rise 5 pct, Hydro up 2 pct
* Orkla to get NOK 1.8 bln
(Adds detail, analyst comment)
By Joachim Dagenborg and Balazs Koranyi
OSLO, Oct 15 Norwegian companies Norsk Hydro
and Orkla are to merge their extruded
aluminium units to cut costs and create a market leader in a
sector suffering a global downturn.
Sapa, a 50/50 joint venture with 47 billion Norwegian crowns
($8.2 billion) annual sales, will pay conglomerate Orkla 1.8
billion crowns because it is putting more assets into the new
company than aluminium group Hydro.
The deal will cut annual costs by 1 billion crowns and is
likely to lead to job losses.
"We are going through difficult times in our markets and the
goal is to restructure to create a competitive company," Orkla
chief executive Aage Korsvolt told reporters on Monday.
The deal shows that Hydro and Orkla are ready to quit a weak
segment within a struggling industry, analysts said. Extruded
aluminium is used for everything from bench seating in sport
stadiums to retail display units to car parts.
The deal's terms allow either owner to initiate an initial
public offering (IPO) of Sapa after three years.
Brokerage Pareto said it valued Sapa at around $2.5 billion
and the group would be a global leader in the segment.
Hydro stock was up 1.5 percent at 26.82 crowns at 1110 GMT,
while Orkla was up 5.6 percent at 47.75 crowns, with the broader
market 0.5 percent higher.
"It adds value for both sets of shareholders," Sparebank 1
Markets analyst Henrik Schultz said. "We have actually been
hoping for this for years," he said, adding the deal could add
up to 1 crown to the value of Hydro shares.
"The agreement between Orkla and Hydro establishes the
world's largest company with this type profile," Norwegian
industry minister Trond Giske said. "This is one of the largest
transactions in the Norwegian market ever," Giske said on behalf
of Hydro's biggest shareholder with a 34 percent stake.
"There is reason to believe that there will also be
consequences for jobs, though that would have happened anyway
due to the weak European markets in particular," Hydro chief
financial officer Joergen Arentz Rostrup said.
Aluminium prices touched a three-year low in August
as overcapacity, high stock levels and a global economic
slowdown cut deep into demand.
While primary producers have cut capacity, demand for
secondary products was expected to remain sluggish for an
extended period, especially with China's growth outlook dimming.
"Norsk Hydro's extrusion business is a low margin, low
returns business," Goldman Sachs said in a note. "Hydro's
decision to merge the extrusion business with Orkla's Sapa
should allow for greater pricing power in the sector, resulting
in stronger margins and higher profitability."
Sapa will be a key player in the building, construction and
transport industries and will have leading positions in Europe
and North America, and strong footholds in markets in Argentina,
Brazil, China, India and Vietnam.
Orkla also said it planned to sell its rolled products
operations in a separate deal, which would also involve its
mills in Shanghai, China and in Finspang, Sweden.
Orkla, which as been selling non-core assets to focus on
branded consumer products, said it considered Sapa a non core
asset and would exit the business if it went public.
($1 = 5.7034 Norwegian crowns)
(Editing by Chris Gallagher and Dan Lalor)
(Balazs.Koranyi@thomsonreuters.com; +47 22 93 69 62; Reuters