Norsk Hydro ASA — M&A Activity 2017

Jul 10, 2017

Norsk Hydro: Hydro acquires Sapa to create a global aluminium champion

Norsk Hydro: Hydro acquires Sapa to create a global aluminium champion

Norsk Hydro has agreed with Orkla to acquire its 50 percent interest in Sapa for

a total enterprise value of NOK 27 billion, giving full ownership in the global

leader in extruded aluminium solutions and making Hydro a leading force in the

global aluminium industry.

Transactional highlights

* Binding agreement to acquire Orkla's 50% interest in Sapa

* Sapa enterprise value NOK 27 billion

* Accretive to earnings and strong cash generation from Sapa from day 1

* Synergies of NOK 200 million per year, mainly related to remelt and

recycling

* Sapa to become new business area in Hydro, named Extruded Solutions

* Anticipated closing of the transaction in second half 2017

* Strong strategic rationale

* Global leadership: worldwide production and customer offering, with

unparalleled technological capability

* Growth: capability and freedom to grow in the most attractive areas of

global aluminium

* Infinite solutions: responsible operations and sustainable solutions for

the future low-carbon economy

"Hydro is now confirming its position as the world's leading integrated

aluminium company and the transaction reinforces our strategic direction Better,

Bigger and Greener, with a solid asset base, unique competencies and

capabilities from mining to end-user products," said Svein Richard Brandtzæg,

President and CEO in Hydro. "Sapa will enable us to assume global leadership,

establish a platform for growth, and provide responsible operations and

sustainable solutions for the future low-carbon economy."

The combination will make Hydro the only global company in the aluminium

industry that is fully integrated across the value chain and markets. Hydro will

have unparalleled strength in technology, R&D, innovation and product

development, as well as an unmatched product and service offering to the benefit

of more than 30,000 customers throughout the world.

After Hydro and Orkla combined their aluminium extrusion assets in 2013, the two

companies have consistently supported the Sapa joint venture's impressive

progress towards higher performance and value creation through streamlining and

improving its global operations.

Global reach, local presence

Following the transaction, Hydro will become a global, integrated aluminium

company with more than 35,000 employees, and activities in around 40 countries.

Hydro's rolled products business has a strong market presence throughout product

segments in Europe. Sapa is the global extrusion champion, with strong market

shares in North America and Europe, and is the global leader in precision

tubing.

Hydro also has solid market presence in metal products across the value-added

metal product categories in Europe, North-America and Asia, and is Norway's

second-largest producer of renewable hydropower. With long positions in bauxite

and alumina, Hydro is among the global leaders in the third-party bauxite and

alumina market outside China.

"Sapa has successfully restructured its business and lifted profitability and is

now well-positioned to continue its journey as part of Hydro, aiming for even

higher value creation through targeting high-tech, high-competence value-add

market segments," Brandtzæg said.

Transaction

The transaction will be financed through cash positions and issuance of bonds in

Norwegian and international markets, and will be temporarily funded by committed

undrawn credit lines. Following the transaction, Hydro is committed to retain

its investment grade rating and a robust balance sheet. Hydro will maintain its

dividend policy of returning 40 percent of net income over the cycle, with NOK

1.25 per share seen as a floor in 2017.

The purchase price will be paid in cash at completion, adjusted for net debt and

normalized working capital.

Completion of the transaction is subject to approval from relevant competition

authorities, and is expected in the second half of 2017.

Description of acquired assets

Formed as a 50/50 joint venture between Orkla and Hydro in 2013, Sapa is a

highly successful aluminium solutions provider and the world's largest extrusion

company. Sapa operates within the business areas Extrusion Europe, Extrusion

North America, Precision Tubing and Building Systems, has 22,400 employees and

is present in 40 countries.

Key financial figures for Sapa (100 % basis) (unaudited)

In NOK million, except sales volumes

Q1 2017 Q1 2016 Year 2016 Year 2015 Year 2014

Sales volume (1000 mt) 355 349 1,365 1,363 1,399

Total Revenues 14,337 13,919 53,430 55,397 46,377

Reported EBIT 856 655 2,420 528 -317

Reported net income (loss) 625 418 1,779 246 -626

Underlying EBITDA 1,100 901 3,498 2,729 1,916

Underlying EBIT 778 571 2,197 1,407 652

Underlying net income (loss) 562 365 1,553 907 398

Total assets 28,628 28,204 25,939 28,870 27,629

Total equity 14,567 12,828 13,800 12,871 11,538

Total liabilities 14,060 15,376 12,139 15,999 16,091

Sapa Board of Directors and management team

At the date of this announcement, Sapa's Board of Directors consists of six

persons. The Board of Directors is presented in the table below. After the

completion of the transaction, Hydro will own 100% of Sapa and will as a

consequence change the board composition of the company.

Name Position

Peter A. Ruzicka Chairman of the Board

Eivind Kallevik Board member

Anne-Lene Midsheim Board member

Terje Andersen Board member

Kenneth Hertz Board member

Tor Egil Skulstad Board member

At the date of this announcement, Sapa's management team consists of 10

individuals. The management team is presented in the table below.

Name Position

Egil Hogna President & CEO

Karl Eichinger EVP & CFO

Katarina Nilsson EVP HR & Organization

Florian Krumbacher EVP & General Counsel

Rafael Fuertes EVP Strategy & Innovation

Erika Ahlqvist EVP Communication & CSR

Charlie Straface EVP & Business Area President - Extrusion North America

Sergio Vendrasco EVP & Business Area President - Precision Tubing

John Thuestad EVP & Business Area President - Extrusion Europe

Salvador Biosca EVP & Business Area President - Building Systems

There are customary retention agreements in place for Sapa's management team.

The total cost of the retention arrangements is estimated to approximately NOK

20 million. Orkla and Hydro have agreed to share the retention costs.

Indicative timeline

Signing of share purchase agreement (SPA): July 10, 2017

Publication of Information Memorandum: Within 30 working days after signing of

SPA

Competition approvals required for closing: Brazil, Canada, China, EU, Turkey

Close of transaction: Expected in second half 2017

Financing activities: Second half 2017/2018

Press conference, analyst and investor presentation and conference call

July 10, 09:00 CET: Press conference and analyst and investor presentation with

webcast (in English) at Hydro' Oslo headquarters. Link to webcast will be made

available on www.hydro.com.

July 10, 15:00 CET: Telephone conference for the international financial market.

Phone-in details will be made available on www.hydro.com.

Financial and legal advisors

Morgan Stanley has provided Hydro's Board of Directors with a fairness opinion

for the transaction, while Wikborg Rein acted as Hydro's primary legal advisor.

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Hydro is a global aluminium company with production, sales and trading

activities throughout the value chain, from bauxite, alumina and energy

generation to the production of primary aluminium and rolled products as well as

recycling. Based in Norway, the company has 13,000 employees involved in

activities in more than 40 countries on all continents. Rooted in more than a

century of experience in renewable energy production, technology development and

progressive partnerships, Hydro is committed to strengthening the viability of

the customers and communities we serve.

Investor contact

Contact Stian Hasle

Cellular +47 97736022

E-mail Stian.Hasle@hydro.com

Press contact

Contact Erik Brynhildsbakken

Cellular +47 41751271

E-mail Erik.Brynhildsbakken@hydro.com

Cautionary note

Certain statements included in this announcement contain forward-looking

information, including, without limitation, information relating to (a)

forecasts, projections and estimates, (b) statements of Hydro management

concerning plans, objectives and strategies, such as planned expansions,

investments, divestments, curtailments or other projects, (c) targeted

production volumes and costs, capacities or rates, start-up costs, cost

reductions and profit objectives, (d) various expectations about future

developments in Hydro's markets, particularly prices, supply and demand and

competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk

management, and (i) qualified statements such as "expected", "scheduled",

"targeted", "planned", "proposed", "intended" or similar.

Although we believe that the expectations reflected in such forward-looking

statements are reasonable, these forward-looking statements are based on a

number of assumptions and forecasts that, by their nature, involve risk and

uncertainty. Various factors could cause our actual results to differ materially

from those projected in a forward-looking statement or affect the extent to

which a particular projection is realized. Factors that could cause these

differences include, but are not limited to: our continued ability to reposition

and restructure our upstream and downstream businesses; changes in availability

and cost of energy and raw materials; global supply and demand for aluminium and

aluminium products; world economic growth, including rates of inflation and

industrial production; changes in the relative value of currencies and the value

of commodity contracts; trends in Hydro's key markets and competition; and

legislative, regulatory and political factors.

No assurance can be given that such expectations will prove to have been

correct.  Hydro disclaims any obligation to update or revise any forward-looking

statements, whether as a result of new information, future events or otherwise.

This information is subject to the disclosure requirements pursuant to section

5-12 of the Norwegian Securities Trading Act.