Good morning, ladies and gentlemen, and welcome to the Orkla conference call. My name is Anna, and I will be your coordinator for today's conference. During the call, you will be on listening only. However, at the end of the presentation, you will have opportunity to ask questions. If any time you need assistance, please press star zero on your telephone, and you will be connected to an operator. I will now hand you over to SVP Investor Relations, Mattias Orrenius, to begin today's conference. Thank you.
Good morning, and welcome to this conference call regarding the Sapa transaction announced this morning. With me here today, I have our President and CEO, Peter Ruzicka, our CFO, Jens Bjørn Staff, and the CEO of Orkla Investments, Terje Andersen. Peter will first give some short comments on the transaction and some words around capital allocation before we open up for questions. And with that, I hand over the line to you, Peter.
Thank you. Good morning, everyone, and welcome to this conference call. I know that many of you have been waiting for news about our future ownership of Sapa, and today we have reached an important milestone. This morning, we announced that we are selling our 50% ownership share in Sapa to Norsk Hydro. The sale is a natural consequence of our strategy of being a leading branded consumer goods company, in accordance with what we announced on Capital Markets Day, actually, in two thousand and eleven. As you know, we have been an owner in Sapa since two thousand and five. Sapa was hit hard by the cyclical downturn after the financial crisis, and results remained weak for several years.
Together with Norsk Hydro, we saw significant synergy potential by merging our two extrusion businesses, and we entered into a JV in 2013. The Sapa JV has been a success story. The combined EBIT on a 12-month basis was close to zero when we started. EBIT has improved over 14 consecutive quarters to 2.4 billion last twelve months per Q1 2017. A strong management team, dedicated employees, and an entrepreneurial spirit throughout the organization has contributed significantly. The transaction we announced today values Sapa at NOK 27 billion on a debt-free basis. Sapa's business was somewhat bigger than Hydro's, and to get the 50-50 ownership, Gränges was spun off and later IPO'd, with a total proceed of 5 billion NOK. Also, when we established the JV, we received 1.8 billion in dividends from the JV on...
When we started. So together with dividend of NOK 1.5 billion paid now in Q2 2017, we expect to realize more than NOK 20 billion from our investment in Sapa. And actually, this is almost double the average sum of the parts value our analysts put on Sapa when we entered into the JV. And I think this also highlights the value of being patient and spending the time necessary to realize underlying potential in all our businesses, and of considering appropriate market timing for when to exit. We had a standstill period for three years and could have started an exit process last year. I am sure many of you have heard me say that we have not been in a hurry to sell, and I believe our patience has created significant value for our shareholders.
The purchase price will be paid in cash at completion, and final purchase price will be determined based on the balance sheet at time of closing, but we estimate a net gain for Orkla of approximately NOK 5 billion. In accordance with Norwegian tax regulations, the gain is exempt from tax. Orkla's board of directors will propose to pay out a special dividend of NOK 5 per share after closing. This corresponds to the expected net gain from the transaction. Our ambition is that the special dividend will be approved and paid out as soon as practically possible after closing of the agreement, which we expect to happen by the end of 2017. Even after the special dividend is paid out, our balance sheet will still be very strong.
As you know, we have a clear strategy of reallocating capital from non-core to branded consumer goods, and during this transformation phase, we believe it is positive to have a flexible balance sheet. You should also bear in mind that we pay out a large share of our free cash flow as ordinary dividend, and for that reason, we prefer a lower gearing ratio in order to be well positioned for further strengthening our branded consumer goods area. In line with Orkla's strategy for capital allocation, our number one priority is to strengthen our branded consumer goods operations, both through M&A and through investment in our existing business. We see a lot of M&A opportunities, but I want you to rest assured that we will not rush into any deals.
As I mentioned, we believe the Sapa transaction is a good example that we can create significant shareholder value by taking the necessary time and have some patience. This is something we believe is true also when it comes to acquisitions. And if we can't find any good targets in a reasonable timeframe, we have shown several times before that we are open to distributing capital back to shareholders. As mentioned, the transaction is expected to be completed by the second half of 2017, pending on approvals from relevant competition authorities. With these remarks, I will now open up for Q&A.
... Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We will then introduce you with your name when it's your turn to ask a question. We will do our kind reminder again, ladies and gentlemen, if you would like to ask a question, please press star one. And we do have a question coming in from John Ennis from Goldman Sachs. Please go ahead. Your line is now open.
Hello, thank you for taking the question. I just wanted to ask, going forward, what is the optimal leverage you would like to see for the Aker business, in regards to net debt to EBITDA, ideally, if you can give that?
Yeah, we have stated several times that we want to remain and be an investment-grade company. That means that our debt to EBITDA level will be in the area of maximum two and a half to three times. And obviously, after both before, but also after this transaction, and after paying out special dividend, we will be far below that hurdle. So we have a strong balance sheet, but as I also mentioned, our first priority is to find attractive assets to buy that fits with our strategy. And obviously, we need some time to find assets and to evaluate different opportunities.
Okay, understood. Thank you very much.
The next question comes from Petter Nystrm, from ABGSC. Please go ahead, your line is now open.
Thank you, and congratulations with the sale. One question for me. I see that the purchase price will be adjusted for normalization of the working capital. Could you just briefly explain what kind of things we should look for when we normalized our working capital in Sapa? Thanks.
I think the working capital level at Q1 is quite close to what you could expect for a normalized level. There's always, as you know, closing elements that will influence it, but I think that is a fair value that you can use. So when it comes to the main elements, it will be net debt influenced by the dividend that we received in May. We have pension liabilities and we will receive our share of the cash flows up till closing.
Okay, perfect. And then just a short follow-up there. The pension liabilities, is that roughly around NOK 800 million?
Yes, that's right.
Okay, thanks.
Ladies and gentlemen, if you would like to ask the question, please press star one on your telephone keypad. Thank you. We do one more reminder, ladies and gentlemen. If you would like to ask a question, please press star one on your telephone. There is no questions coming through, so I will hand the call back to you again. Thank you.
Thank you all for participating in today's call. I wish you a continued pleasant day, and just follow up with any questions you have, either through phone or email. Thank you.
Okay, thank you. Bye-bye.
Thank you for joining today's conference. You may now replace your headset to end this call. Thank you.