SEOUL/LONDON POSCO is considering a takeover of Norway's Elkem, a maker of silicon for solar panels, the CEO of the South Korean group said, in a move that would give the world's No.3 steelmaker a presence in the fast growing renewable energy materials space.
Elkem, owned by pizza-to-aluminium conglomerate Orkla ASA, could cost POSCO around $1 billion, based on the company's financial figures and analyst research notes.
A deal with POSCO would allow the Norway-based conglomerate to shed the silicon unit and sharpen its business focus.
A POSCO-Elkem takeover would be the latest example of assertive overseas dealmaking by South Korean firms, with state oil company Korea National Oil Corp in a $2.6 billion hostile takeover bid for Britain's Dana Petroleum Plc.
"We are internally considering (the takeover)," POSCO chief executive Chung Joon-yang told Reuters on Monday after signing a final deal to buy South Korea's top trading firm Daewoo International for 3.37 trillion won ($2.8 billion), its biggest ever takeover.
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. In turn, POSCO has hired Citigroup, two different sources familiar with the matter said.
Moelis and Citi declined to comment. Orkla and Elkem officials could not be reached for comment on Friday, when Reuters first contacted the companies with source-based information about the takeover talks.
The sources spoken to for this story were not authorised to speak on the record about the matter.
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.
"But any deal is likely done by one of its affiliates rather than by POSCO itself because shareholders prefer it to focus on its core operation of steel and there would be little synergy between solar energy and steel," Chang added.
Oslo-based Elkem produces solar-grade silicon, metallurgical silicon, foundry industry alloys, carbon, and microsilica.
In May POSCO said 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," Lee added.
Elkem operating revenues fell 18 percent last year to 7.433 billion Norwegian kroner ($1.18 billion).
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.
Factoring in cash flows and revenues from Elkem's energy and silicon businesses, analyst notes show that a takeover of Elkem could be worth around $1 billion, including a premium.
Goldman Sachs told clients in a note it expects Elkem's silicon and solar businesses to post a combined 2010 revenue of $1.3 billion with an earnings before interest, tax, depreciation and amortisation of $140 million.
First Securities said in its research note that Elkem's energy and silicon businesses are worth a combined $913 million.
(Additional reporting by Michael Flaherty, Denny Thomas and Leonora Walet in HONG KONG, Richard Solem in OSLO and Brett Cole in SEOUL)
(Editing by Dhara Ranasinghe and Muralikumar Anantharaman)
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