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Norsk Hydro To Take Over Vale S.A’s Aluminium Businesses

|Includes: BNPQY, DNBHF, Norsk Hydro ASA ADR (NHYDY), VALE
Norsk Hydro ASA has signed an agreement to take over Vale S.A’s aluminium businesses to form a resource-rich and fully integrated aluminium company, securing Hydro’s bauxite supplies in a 100-year perspective, the Norwegian company announced Sunday.

“This transforming and value-creating combination takes Hydro to a new league in the global aluminium industry.”
Svein Richard Brandtzæg

“The combination will considerably strengthen Hydro’s position in bauxite mining and alumina refining, which, along with energy, are the most important input factors in aluminium production. The high quality and efficient cost base of the contributed assets will also significantly improve Hydro’s financial position,” the Norwegian company says in a statement issued Sunday afternoon.

After an engagement period of 40 years, they’re finally tying the knot – about time, some might say.

In summary, this is the marriage contract:

* Hydro has entered into an agreement to combine the majority of Vale’s bauxite, alumina and aluminium assets with Hydro’s existing business
* The transaction transforms Hydro into a fully integrated global aluminium company securing the company’s bauxite supplies in 100-year perspective
* Vale will receive a total consideration comprising USD 1.1 billion in cash and new Hydro shares equivalent to 22 percent ownership of its outstanding shares.
* As of April 30 and considering assumed net debt, this equates to a total consideration of USD 4.9 billion
* Following the transaction, Hydro will have a long position in bauxite and alumina, the key input factors for aluminium production in addition to energy
* To partly finance the transaction, support the company’s investment grade rating and capacity to implement future projects, Hydro intends to launch a fully underwritten rights issue of NOK 10 billion (approximately USD 1.75 billion).

“This transforming and value-creating combination takes Hydro to a new league in the global aluminium industry. The deal will secure Hydro equity bauxite and alumina ownership and significantly improve our competitive position, making us more financially robust and well-positioned for growth,”
Hydro’s President and CEO Svein Richard Brandtzæg says.

“Vale is highly recognized for its strong social and environmental track record and its commitment to transform mineral resources into sustainable development. Hydro will continue to build on these high standards,”
he adds.

Hydro’s largest shareholder, the Norwegian state, represented by the Ministry of Trade and Industry, owns 43.8 percent of the issued shares and is supportive of the transaction and the rights issue.
The Ministry of Trade and Industry will put forward a parliamentary proposition to participate for its pro rata share of the rights issue, which is expected to be obtained by mid-June 2010.

The Government Pension Fund Norway (Folketrygdfondet), owner of 5.9 percent of the issued shares, is supportive of the combination and the rights issue, and has entered into an agreement to underwrite and subscribe for its pro rata share of the rights issue.

The remaining share of the rights issue is underwritten by Citi, DnB NOR Markets and BNP Paribas, subject to customary terms and conditions.

The subscription price in the rights issue will be set shortly before the extraordinary general meeting. The subscription period will commence shortly following the extraordinary general meeting, with the rights issue targeted for completion in July 2010.

Here’s a copy of the full presentation.

Disclosure: No position