OSLO (Reuters) - Norway's Norsk Hydro (NHY.OL) and Orkla (ORK.OL) will merge their extruded aluminium businesses into a 50/50 joint venture to cut cost and gain scale amid the industry's global downturn, the two firms said on Monday.
"Our extrusion business was profitable for many years but has more recently been hit hard by the weak economic climate in Europe, which we expect to last for a while," Hydro Chief Financial Office Joergen Arentz Rostrup said.
"There is a considerable need for restructuring," he added.
The venture, to be named Sapa, will include Hydro's extruded products business and Orkla's profiles and building system unit as well as its extruded and welded tubes unit, creating a firm 47 billion crowns ($8.24 billion) in sales.
The deal will generate around 1 billion crowns in synergies, the firms added.
To compensate Orkla for its bigger contribution to the new venture, Hydro will also pay the firm 1.8 billion crowns in cash within six months of the deal's completion.
"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," Rostrup said.
Sapa will become 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 like Brazil, Argentina, China, India and Vietnam.
($1 = 5.7034 Norwegian krones)
Reporting by Balazs Koranyi and Terje Solsvik; Editing by Chris Gallagher