Vale SA (VALE:US), the Brazilian iron-ore producer seeking asset divestments to cut costs and boost profit, plans to sell as much as a 22 percent stake in aluminum-maker Norsk Hydro ASA (NHY) valued at about $1.8 billion.
Vale will sell as many as 407 million shares in Oslo-based Hydro in an offering, and as many as 40.7 million additional shares via an over-allotment option, it said in a regulatory filing today. The Rio de Janeiro-based company increased the offer from a total of 224 million shares after a book-building process announced earlier today.
The Brazilian 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 acquired a 22 percent stake in Hydro, and a seat on the board, after selling its bauxite and alumina assets in Brazil to the aluminum producer for $5.27 billion in 2011. If all shares are sold in the offering and the option is fully exercised, Vale will no longer hold Hydro shares, it said.
Hydro rose 0.4 percent to close at 26.96 kroner in Oslo today. 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.
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 considering 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 as 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.
Vale shares rose 1.2 percent to 33.25 reais in Sao Paulo.
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