Vale seeks to sell $1.8 billion aluminum Norsk Hydro stake

Vale SA (VALE), the world’s biggest iron ore exporter, plans to sell its stake in aluminum-maker Norsk Hydro ASA (NHY) for as much as $1.8 billion, about half the holding’s value when the Brazilian company acquired it in 2011.

Vale expects to sell as much as 447.7 million shares, or all its 22 percent stake in Oslo-based Hydro, the Rio de Janeiro-based company said yesterday in a regulatory filing.

The miner is selling assets, putting projects on hold and focusing on its more profitable iron-ore business in a bid to recover profit margins after commodity prices fell. In September, it sold stakes in a cargo unit for about 2.7 billion reais ($1.2 billion) to Japan’s Mitsui & Co. and a Brazilian government fund after $1.47 billion of asset sales last year, including a coal mine in Colombia and 10 large vessels.

“This is positive because it’s part of the divestment plan that Vale has been talking about,” Mariana Bertone, an equity analyst at GBM Grupo Bursatil Mexicano SA, said in an interview in Rio. “It’s a step forward.”

Vale shares rose 1.2 percent to 33.25 reais in Sao Paulo. Hydro rose 0.4 percent to close at 26.96 kroner in Oslo yesterday. The shares will be priced at 25 kroner each, according to terms of the offering obtained by Bloomberg, which would value the entire stake at $1.82 billion.

At 25 kroner a share, the deal prices the stake slightly above its value on Vale’s books, said Alan Glezer, an equity analyst at Banco Bradesco SA. “We view the likely transaction as positive as it strengthens Vale’s balance sheet, helping to alleviate part of the leverage pressure during an intense period of investment,” he said yesterday in a note.

Board Seat

Vale received $1.08 billion in cash, the 22 percent stake and a seat on the board, after selling its bauxite and alumina assets in Brazil to the aluminum producer. Including assumed net debt, the value of the deal was $5.27 billion, Hydro said in February 2011. If all shares are sold in the offering and the option is fully exercised, Vale will no longer hold Hydro shares, it said yesterday.

The 22 percent stake was valued at $3.53 billion, based on a closing price of 44.63 kroner, when the asset sale was completed in February 2011, according to the 2011 statement.

Vale will sell as many as 407 million shares in the offering, and as many as 40.7 million additional shares via an over-allotment option, it said in a regulatory filing. It increased the offer from a total of 224 million shares after an earlier book-building process.

Book Runners

DNB Markets and Morgan Stanley are acting as joint global coordinators and book runners for the offering, Vale said.

The world’s largest maker of the steel-making ingredient is also studying the sale of its 40 percent stake in Brazilian bauxite producer Mineracao Rio do Norte SA and oil and gas assets, Chief Executive Officer Murilo Ferreira said Sept. 24.

“We also have a surprise that I won’t mention so you remain curious,” Ferreira told reporters in Belo Horizonte, Brazil, at the time. The company is “very focused” on its divestment plan and was working to make new announcements, he subsequently said Nov. 7 during an earnings conference call.

As part of its cost-reduction efforts, Vale is also working to combine some of its nickel operations in Canada’s Sudbury basin with Glencore Xstrata Plc.

Vale officials have been saying they may consider selling the Hydro holding since at least December. CEO Ferreira said in April that the company won’t “discard” its stake and that short sellers of the Norwegian stock may “get tired” of waiting for a divestment.

The Brazilian miner wrote down $975 million on the value of the Hydro investment as part of $5.66 billion in charges and impairments taken during the fourth quarter of 2012, it said Feb. 27. Vale last week posted its first quarterly profit increase in more than two years.

“The offering of Hydro shares is consistent with Vale’s strategy of reducing its exposure to non-core assets, and a result of its focus on discipline in capital allocation and value maximization for shareholders,” it said in the statement.