The Merger Endgame in the Aluminum and Paper industries: Opportunities for Norsk Hydro and Norske Skog
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The development of the Aluminum and Paper industry is assessed by A.T. Kearney s Merger Endgame framework. The implications for Norsk Hydro and Norske Skog are also addressed along with value creation opportunities for the corresponding stockholders. The Merger Endgame framework reveals that up/midstream in the Aluminum industry is entering the Balance and Alliance Stage while downstream is deconsolidating. The implications for Norsk Hydro are that the ability to cooperate and build joint ventures will be increasingly important in up/midstream while the rivalry is likely to increase downstream. Norsk Hydro has invested heavily in up/midstream and is well positioned for such a development in this business area. However, the company s expansion in up/midstream and the increasing rivalry downstream imply that the management does not have the capacity to build top performers within these two business areas which rely on different skills. The greatest value creation opportunity is therefore to further demerge downstream operations in order to secure operational mobility and responsiveness to shifting market conditions. The Merger Endgame framework reveals that the Paper industry is entering the Focus Stage. The implication for Norske Skog is that the industry will continue to consolidate but at a slower speed. Financial distress and unsustainable prices in Europe are limiting Norske Skog s ability to invest in value creation opportunities or assess acquisition targets on its own. Further consolidation in Europe might limit the current overcapacity problem but the Merger Endgame framework reveals that the consolidation speed is decreasing. From the perspective of the stockholders the greatest value creation opportunity is therefore to sell to liquidate. However, Norske Skog is not considered an attractive acquisition target and potential acquirers are limited. If neither a partner is found nor a consolidation within the newsprint and magazine segment occurs, there is a severe risk of bankruptcy in the future for Norske Skog. The Merger Endgame framework s main strength is its potential to make Porter s five forces analysis more dynamic. The main weakness is the uncertainty regarding the correctness and precision of the framework. Further empirical research is needed to evaluate the framework as there are several weaknesses in its empirical foundation.