Orkla Sells Aluminum Division And Offers Special Dividend
- Orkla sells off its aluminum division for $3.2 billion.
- Special dividend of 5 krone.
- The company will continue to expand into foods.
Orkla (OTCPK:ORKLY) has finally done something that we shareholders have been waiting for a long time-sold off its aluminum division and has begun paying a special dividend. The company has $3.2 billion in cash to reinvest into new, high profit margin, food companies.
The company has 1.02 billion shares, the stock trades for 85.86 Norwegian krone, and the market cap is 87.6 billion krone ($10.4 billion). The dividend is 2.6 krone and the dividend yield is 3%. Earnings per share are 4.23 krone and the price to earnings ratio is 20.53. It takes 8.33 krone to buy one dollar. Orkla reports second quarter results on July 14.
Sapa produces a product known as "extruded aluminum". Extruded aluminum is the manufacturing of aluminum products. The deal calls for Hydro to pay Orkla 27 billion krone ($3.24 billion). Orkla made 5 billion krone profit ($600 million) on the deal. Also, it's not taxable. My guess is that an American company would pay a tax on a transaction of this nature.
The best part of the deal is that shareholders will receive a 5 krone special dividend. So this year, we receive 7.6 krone. That's a yield of 8.85% this year! Unfortunately, we'll pay quite a bit of taxes to the Norwegian government-even in IRAs. The U.S. does not have a dividend treaty with Norway. In February 2016, I wrote, "If history repeats itself, there will be a special dividend in two or three years".
Orkla was in the conglomerate business but has been shifting into foods for the last few years. It was in aluminum (just sold), paint (still is), hydroelectric power (still owns), and extruded aluminum in Sweden (spun off). Of course the crown jewel is the foods division. It's sold and bought many companies. In 2004, the company sold off an interest in Carlsberg beer (OTCPK:CABGY). Stein Erik Hagen owns 24.48% of the company. The move to food is his vision.
Management will take the $3.2 billion and invest in new food companies. There has been too much M&A in the last few years to completely cover. My hope is that management raises the normal dividend from 2.6 krone to 3. It was 2.5 when we first bought shares.
Orkla produces pizza, chocolates, snacks, pickles, ketchup, lotion, and 300 other products. It also distributes Pepsi in Norway. According to the Annual Report: 31% of sales come from Norway, 40% Nordics, 5% Baltics, 24% in Europe. Earnings per share grew from .68 krone in 2013 to 4.23 last year.
When I first wrote about Orkla in November 2013, the market cap was 48.4 billion krones. It's doubled in krones but unfortunately, the krone has not done well against the dollar. It took 6.25 krone to buy one dollar and now takes 8.33. At the time of my first article, the dividend yield was 5.2%. I valued Sapa at 20 billion four years ago. I was on the mark on that one (sometimes I'm wrong, just read my articles).
An interesting side note about Hydro. The famous plant where the German were trying to manufacture heavy water during WWII was owned by Hydro. The plant was bombed in a raid by Norwegian and commandos. Thank God Hitler didn't get the bomb that he wanted.
Orkla is sure to continue to reinvest in new food companies. Orkla still has somewhat of a conglomerate discount. Most food companies trade at high price to earnings and cash flow ratios. When all is done and said, Orkla will be almost completely foods and consumer products in a few years and will be worth much more than a $10 billion market cap. If earnings are 4.23 krone a share now, wait until the $3.2 billion is reinvested into food and the paint and electrical divisions are sold off.
Orkla is a buy. We don't buy shares too often after making a nice profit but will in this instance. The dividend alone makes it worth it. The stock is barely mentioned in the U.S. but that's ok. As Benjamin Graham said, the market is a voting machine in the short term and weighing machines long term.
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