Business Context and Reporting Period
This Form 6-K, dated March 14, 2007, discloses the Merger Plan between Statoil ASA and Norsk Hydro ASA regarding the demerger of Hydro's Petroleum Activities and their subsequent merger with Statoil. The transaction is structured as a "merger of equals" to create a competitive global participant in the petroleum industry, specifically aiming to become the world's largest operator for offshore projects in water depths exceeding 100 meters. The financial effective date for the merger is January 1, 2007, with legal implementation expected in September or October 2007 following shareholder and regulatory approvals.
Key Financial Metrics and Capital Structure
The filing details the specific financial mechanics of the demerger and merger rather than standard quarterly operating results.
- Exchange Ratio: Hydro shareholders will receive 0.8622 shares in the Merged Company (StatoilHydro ASA) for each share owned in Hydro.
- Share Capital Adjustments:
- Hydro: Share capital will be reduced by NOK 3,197,265,703.30 (from NOK 4,567,522,433.30 to NOK 1,370,256,730) via a reduction in par value per share from NOK 3.66 to NOK 1.098.
- Statoil: Share capital will increase by NOK 2,606,655,590 (to NOK 7,971,617,757.50) through the issuance of 1,042,662,236 new shares with a par value of NOK 2.50.
- Debt Allocation: Hydro's Petroleum Activities are allocated a net interest-bearing debt of NOK 1 billion as of the effective date. Specific bond loans totaling approximately NOK 18.8 billion (NOK 16.3 billion under the 1992 Indenture and NOK 2.5 billion under the 1999 Trust Deed) are transferred to the Merged Company.
- Guarantees: A guarantee portfolio related to Petroleum Activities with a liability of approximately NOK 20 billion is transferred to the Merged Company.
- Dividends: Prior to implementation, Statoil is to distribute an ordinary dividend of NOK 9.12 per share, and Hydro is to distribute NOK 5.00 per share (charged to Petroleum Activities).
Material Changes and Asset Transfer
The filing outlines a comprehensive transfer of assets, rights, and obligations from Hydro to the Merged Company, effective January 1, 2007.
- Assets Transferred: Includes all exploration, production, transport, processing, and marketing activities related to oil and gas. This encompasses Hydro's wind power activities, interests in Naturkraft AS, Hydro IS Partner (IT/IS services), and Norsk Hydro Canada Inc.
- Assets Retained by Hydro: Hydro's Remaining Activities will retain its Aluminium business, hydroelectric power, solar energy, CO2 quotas, and the captive insurance company Industriforsikring AS.
- Employee Transfer: Approximately 5,000 employees from Hydro's Petroleum Activities will transfer to the Merged Company, maintaining their salary conditions and rights. The Merged Company will assume responsibility for related pension liabilities, including 36% of unfunded pension liabilities for employees with mixed roles.
- Valuation Basis: The exchange ratio reflects a valuation where Hydro's Petroleum Activities represent approximately 70% of Hydro's total stock value, based on cash flow analysis.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The Boards of both companies state that the merger is a growth-oriented response to increasing competition for resources and technical complexity. The Merged Company is expected to have greater financial strength to participate in larger projects, achieve geographical diversification, and extend the economic lifetime of oil fields on the Norwegian Continental Shelf. The combined entity will operate in nearly 40 countries.
Conditions and Risks: Completion of the merger is contingent upon several conditions, including:
- Approval by the general meetings of both Hydro and Statoil (requiring a two-thirds majority).
- Obtaining necessary approvals from public authorities and third parties.
- Settlement of the estimated Demerger Balance.
- Expiration of the creditor objection period without unresolved material objections.
- Statoil maintaining its listing on the Oslo and New York Stock Exchanges.
Unusual Items: The transaction involves a complex "Demerger Balance" mechanism to adjust for cash flows and intra-group transactions between the effective date and implementation. This balance bears interest at one month's NIBOR and will be settled in cash at implementation.
Investor Verification Checklist
- Verify the final approval of the Merger Plan by the general meetings of both Norsk Hydro ASA and Statoil ASA.
- Confirm the receipt of all necessary regulatory and antitrust approvals from relevant public authorities.
- Monitor the settlement of the Demerger Balance and the final calculation of the NOK 1 billion net debt allocation.
- Review the final draft opening balance sheet for the Merged Company (StatoilHydro ASA) to ensure accurate asset and liability transfer.
- Check for any material changes in the business or capital structure of either party during the interim period that could affect the merger terms.