The Norwegian company is undertaking due diligence on VAW, which it sees complementing its existing operations VAW is particularly strong in rolled products and engine castings, while Hydro's strengths lie in primary metal production and extrusions.

"It's quite a good fit for them. It strengthens Hydro's position in Europe," said John Martin, research manager for aluminum metal and raw materials at CRU International.

"It's not much of a surprise," aluminum analyst Angus MacMillan at Brook Hunt said. He added that Hydro had said it was looking to expand, but in the present economic situation it had been forced, to delay plans for greenfield projects.

"It makes more sense to invest in existing capacity," MacMillan said.

A number of other aluminum companies have been interested in VAW since it was put up for sale last year.

Alcan Inc. confirmed its interest in April of this year. The two companies share an interest in the Alunorf rolling mill in Germany, and Alcan might still be keen to expand in Europe despite the failure of its planned merger with Pechiney SA.

Paris-based Pechiney itself has also been rumored as a buyer. But Pechiney's president, Jean-Pierre Rodier, said earlier this year that while his company might be a potential buyer for some of VAW's assets, it is extremely unlikely to be a bidder for the company as a whole because of antitrust concerns.

Just last month E.ON was reportedly close to concluding a deal with British investment group CVC Capital Partners, but neither party would confirm their involvement in a deal.

E.ON said the sale is unlikely to be finalized until the first quarter of 2002, when it can take advantage of new German tax regulations on disposals that come into force in the new year.