Mass Media Overview
Russian company Severstal buys Sparrows Point steel mill
27.03.2008 14:58
International Herald Tribune/ http://iht.com/ March 21, 2008
BALTIMORE: A Russian company run by one of the world's richest men announced Friday that it will buy the Sparrows Point steel mill from a rival billionaire for hundreds of millions of dollars less than once sought.
Russian steelmaker OAO Severstal, run by Alexei Modashov, said it has agreed to buy the plant from ArcelorMittal, run by billionaire Lakshmi Mittal, for $810 million (EUR525 million). ArcelorMittal was formed by a merger of Mittal Steel and Arcelor SA of Luxembourg, which Severstal had also sought to acquire, and the newly merged company had agreed to sell the massive plant to resolve U.S. Department of Justice antitrust concerns, but a $1.35 billion (EUR0.88 billion) deal fell through in December.
Severstal said in a statement on its Web site that the all-cash deal "reflects a significant strategic opportunity to add complementary assets and scale to Severstal's existing U.S. business."
"With Sparrows Point, Severstal brings into its U.S. portfolio an asset with significant existing value as well as unlocked growth potential," Modashov, the company's CEO, said in a statement.
Charles Bradford, a steel industry analyst with Soleil Securities, said the bid was in line with his valuation of the plant. The analyst said he did not know why the price was so much lower this time, but added he had been surprised at the amount of the previous bid.
"It's pretty clear the last time the people who won the bid couldn't finance it," Bradford said.
The $1.35 billion (EUR0.88 billion) deal to sell the plant to E2 Acquisition Corp., an international investment group led by Esmark Inc., of Chicago Heights, Illinois, collapsed in December due to what Mittal said was E2's inability to secure financing.
Severstal has plenty of cash and should not have any problem paying for the plant if the deal goes through, Bradford said.
In Washington, Gina Talamona, a spokeswoman for the U.S. Department of Justice, said its antitrust division "expects to conduct a prompt review of the agreement and the proposed acquirer."
Severstal said the deal is expected to close in the second quarter. ArcelorMittal issued a statement Friday saying it also expected the deal to close in the second quarter.
Severstal reported earlier this week that net profit for last year rose 33 percent from the year before as the company benefited from a strong European market, but said its North America results for the year were hit by weaker market conditions in the region and a planned outage related to the rebuilding of a blast furnace.
Bradford said the Russian company already owns two U.S. plants, including a Michigan plant that is partially closed following an explosion. The Sparrows Point purchase would make it easier to get steel to that plant for finishing, rather than shipping it from Russia, the analyst said.
Bradford said he has also heard rumors Severstal may be interested in buying another U.S. plant.
Sparrows Point, which can produce 3.9 million tons of crude steel annually is the only integrated producer of flat-rolled steel on the East Coast. Severstal and the United Steel Workers union have agreed to enter into a collective-bargaining agreement, Severstal said.
The union issued a statement Friday saying it had given initial approval of the acquisition.
"In the search for a buyer, following the unraveling of a previous proposed deal last December, we have always maintained that the union will not reach agreement with a successor unless it includes a long term business and operational strategy that produces security for our members, their families and our retirees. We now have that at Severstal," said David McCall, chairman of the USW bargaining committee for ArcelorMittal in North America.
The Russian company said it plans a five-year investment program at Sparrows Point and expects the deal to begin to add to earnings in the first year, noting it expects substantial synergies with its U.S. operations in Dearborn, Michigan, and Columbus, Mississippi. The addition of Sparrows Point will improve distribution channels, providing direct ocean access as well as proximity highways and rail lines, the Russian company said.