Norsk Hydro Scores Coup

"On paper it's a so-called merger among equals, but it's fair to say that Statoil is paying with its own shares" for Norsk Hydro's oil and gas assets, says Morten Normann, a senior research analyst at Kaupthing AS, noting that Statoil's reserves and production facilities double those of Norsk Hydro's.

Norsk Hydro will end up owning 32.7% in the newly combined company, while Statoil will hold a 67.3% stake. For every share in Norsk Hydro, investors are expected to receive 0.8622 shares in the new company, which is not yet named; despite the brand power of the name, the new company will not be called Statoil, according to senior executives at the oil giant.

In Oslo, investors are now beginning to take note of the remainder of Norsk Hydro, which will form a stand-alone company. It is not thought that the new, slimmer Norsk Hydro will be pursuing M&A discussions.

After Monday's rally, Normann sees the real value play right now in Norsk Hydro's aluminum operations, which he says are still trading at a hefty 50% discount to earnings. "If Hydro and Statoil were the only two companies in my universe right now, I'd be long Hydro and short Statoil," he said. "And if I was looking at buying both companies right now, I'd be buying at a ratio of three to one, on Hydro's side."

Other analysts concur.