UPDATE 5-South Korea's POSCO eyes Orkla's Elkem unit

Mon Aug 30, 2010 7:23pm IST

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* Deal would help POSCO expand into renewable energy

* Elkem operating revenues totalled $1.2 billion in 2009

* Analysts estimate Elkem may be worth around $1 billion

* Moelis advising Elkem, Citi advising POSCO - sources

* Orkla shares up 5.3 percent, POSCO closes up 2.6 percent

(Adds more Orkla analyst comments, details)

By Ju-min Park and Quentin Webb

SEOUL/LONDON, Aug 30 (Reuters) - South Korean group POSCO (005490.KS) is weighing an acquisition of Elkem, a Norwegian maker of silicon for solar panels, to take the world's No.3 steelmaker into fast-growing renewable energy materials.

"We are internally considering (the takeover)," Chief Executive Chung Joon-yang told Reuters on Monday.

Chung Joon-yang spoke after signing a final deal to buy South Korea's top trading firm Daewoo International (047050.KS) for 3.37 trillion won ($2.8 billion), its biggest takeover.

Elkem, owned by pizza-to-aluminium conglomerate Orkla ASA (ORK.OL), could cost POSCO around $1 billion, based on the company's financial figures and analyst research notes.

An Elkem takeover would be the latest example of assertive overseas dealmaking by South Korean firms. State oil company Korea National Oil Corp has made a $2.6 billion hostile takeover bid for British group Dana Petroleum DNX.L. [ID:nLDE67Q08I]

A deal with POSCO would allow the Norway-based conglomerate to shed the silicon unit and sharpen its business focus.

"This is clearly a positive for Orkla," said analyst Anita Huun at Handelsbanken Capital Markets. "The market wants to see a narrowing of Orkla's portfolio...to reveal the underlying value."

ABG Sundal Collier analyst Dag Sletmo estimated that Elkem's silicon division was worth 6 billion Norwegian crowns ($955 million).

Oslo-based Orkla shares jumped 5.3 percent after Reuters reported news of POSCO's interest in Elkem, or about half of the value of the potential Elkem sale, Sletmo said.

"The timing is good. There is industrial logic in buying silicon," Sletmo said. "If Orkla gets a good deal, they will sell. If not, it won't happen."

POSCO shares ended up 2.6 percent.

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For a FACTBOX on solar panels, click: [ID:nSGE6740LA]

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Sources familiar with the matter said both sides had hired investment banks to advise on a deal, which could lead to a full takeover or a smaller transaction.

Moelis & Co, an investment bank founded by veteran dealmaker Ken Moelis three years ago, has spent months advising Elkem on its options, according to three sources familiar with the matter. POSCO has hired Citigroup (C.N), two different sources familiar with the matter said.

The sources spoken to for this story were not authorised to speak on the record about the matter.

Moelis, Citi and Orkla declined to comment.

CROSS-BORDER SOLAR TALKS

"POSCO is very much interested in growing its non-steel businesses and especially expand into renewable energy to secure a future growth momentum," said Woori Investment & Securities analyst Chang Lee.

Elkem produces solar-grade silicon, metallurgical silicon, foundry industry alloys, carbon, and microsilica.

POSCO said in May that RIST, its research unit, had held talks with Elkem's CEO on collaboration that could lead to "opportunities to take advantage of Elkem's independent polysilicon-manufacturing technology".

Elkem's operating revenue fell 18 percent last year to 7.433 billion crowns.

The sources did not say what Elkem expected to fetch from a bid. Normally, a combination of revenues, cash flows and industry multiples play a role in the final purchase price.

Goldman Sachs said in a note it expects Elkem's silicon and solar businesses to post combined 2010 revenue of $1.3 billion with earnings before interest, tax, depreciation and amortisation of $140 million.

Huun, the Handelsbanken Capital Markets analyst, estimated Elkem's worth at around 8-12 billion crowns, while a Norwegian trader who did not want to be named said it was worth 9 billion.

"The main uncertainty about Elkem's valuation is Elkem Solar, which has not contributed to earnings yet," Huun said. "The market sees it as positive that Orkla makes structural moves. But it remains to be seen what the eventual price for this will be and if any offer is made." (Additional reporting by Michael Flaherty, Denny Thomas and Leonora Walet in Hong Kong, Richard Solem and Camilla Bergsli in Oslo and Miyoung Kim and Brett Cole in Seoul; Editing by Anshuman Daga and Michaeal Shields) ($1 = 6.280 Norwegian crowns = 1,195.1 Won)

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