Knut-Ivar Bakken, analyst at Sparebank1 Markets. PHOTO: Aslak Berge

Sparebank1 Markets believes this will be the outcome of the merger talks between NRS and NTS

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Tug of war is underway.

On Thursday, merger talks were initiated between Norway Royal Salmon (NRS) and NTS subsidiary SalmoNor. Meanwhile, NRS CEO Charles Høstlund was told by the board to pack his bags. Høstlund is to be replaced, until further notice, by Executive Vice President and former financial analyst Klaus Hatlebrekke.

NTS has a majority shareholding in NRS and is sole shareholder in SalmoNor, so should be well placed to negotiate a merger agreement between the two fish farming companies.

Minor synergies
Sparebank 1 Markets analyst Knut-Ivar Bakken believes that it is too early to conclude the potential merger between NRS and SalmoNor, as there have been no indications of the relative valuation.

All things being equal, Bakken believes that the combined company will be more relevant to investors as a result of its size, but at the same time sees only minor synergies between the companies as they operate in different regions.

In the investment bank’s view, a “fair relative valuation” is around 60 per cent, in the interval 57-61 per cent, for existing NRS shareholders. At this valuation, NTS will have around 81 per cent of the combined company.

Trust
“We believe it is important for NTS to ensure that the relative valuation is seen as fair for owners of NRS since they are dependent on trust among investors”, Bakken wrote in an update on Friday, reports TDN Direkt.

Sparebank 1 Markets will continue to continue to list NRS as ‘buy’ after yesterday’s announcement as there are some positive elements in a merger. The buy recommendation on NRS is maintained with a price target of NOK 270 per share.

At lunchtime on Friday, the NRS share had fallen 1.5 per cent, while NTS had also dropped by 0.8 per cent.