Norwegian group Orkla has boosted its ownership in metals maker Elkem to over 50 per cent and launched a takeover bid for the rest, valuing the whole company at $1.85 billion.
Elkem is the world's biggest producer of silicon metal and also makes ferrosilicon, aluminium and controls Swedish listed aluminium products firm Sapa. US aluminium giant Alcoa, which owns 46.5 per cent of Norwegian Elkem, said it was monitoring the situation.
Elkem has long been caught in the middle of Orkla and Alcoa, which also has a joint venture with Elkem in aluminium and has cooperated with it for decades. Alcoa made two failed takeover bids for Elkem in 2002. Nonetheless, Orkla has stressed the importance of continuing the good partnership with Alcoa in Elkem Aluminium.
Orkla, whose operating profit of NOK3.8 billion is made up of 40 per cent food, sees Elkem as a perfect fit within its business strategy, and sees the company as an ideal industrial opportunity. Orkla has available cash after selling out of a beer joint venture with Denmark's Carlsberg.
Elkem has been moving in a more specialised and less capital-intensive direction over recent years, and today focuses mainly on speciality materials and products. Orkla says it intends to further develop Elkem in the direction of continued emphasis on profitable growth, specialisation and market leadership.
Indeed, Orkla intends to focus on branded consumer goods as well as on speciality materials and financial investments in the future. Each area will be developed on its own terms, with management focus and concentration on selected core areas. At the same time, Orkla will continue to create value by utilising the Group's expertise and management across business areas.
Elkem will contribute additional expertise to Orkla, especially in the field of production improvement and operations, while Orkla will bring to Elkem greater financial strength and expertise in the development and marketing of refined products.
Orkla considers the potential for further profitable development in the Speciality Materials area to be good, and will focus on exploiting it. Orkla says it will place emphasis on creating value for its shareholders. If, over time, it should prove that the company can create greater value through different solutions, the Group's structure will enable it to consider a spin-off of the Speciality Materials area later on.
The acquisition is taking place on terms that are expected to create value for Orkla shareholders. A price of NOK 235 per share gives an EV/EBITA multiple of less than 10 and a P/E of less than 13, and will have a significant accretive effect on Orkla's profit.
If Orkla acquires 100 per cent of Elkem, the group's average cost will be approximately NOK 180 per share. If the other shareholders choose not to sell their shares to Orkla, the group's average cost will be approximately NOK 125 per share.
Even after paying for the remaining Elkem shares (approximately NOK 7 billion) Orkla says it will still have substantial financial resources for further expansion of the group.
As a consequence of these acquisitions, the present financial shareholding in Elkem will become part of Orkla's industrial area, and the financial portfolio will be reduced accordingly.
Orklais one of the largest listed companies in Norway. The core businesses are branded consumer goods, chemicals and financial investments. The group is a leading supplier of branded consumer goods to the Nordic grocery market, holding many number one or two positions in strategically important product areas.