Business Daily from THE HINDU group of publications
Tuesday, Jun 27, 2006
Business Daily from THE HINDU group of publications Tuesday, Jun 27, 2006 |
|
|
|
|
|
|
|
|
Home Page
-
Steel Corporate - Mergers & Acquisitions Columns - Focus Arcelor deal could transform global steel industry Radhika Kamath
Broad based The two companies complement each other in terms of operations, product mix and markets served While Arcelor has large operations in Latin America and sells to long-term clients in the auto industry in Europe, Mittal Steel has established itself in North America by acquiring the International Steel Group
The proposed merger of Mittal Steel and Arcelor marks a significant event that is likely to transform the fortunes of the global steel industry. The Arcelor-Mittal combination creates a steel company with massive scale, a strong global presence and a broad based product offering. As the two companies complement each other in terms of operations, product mix and markets served, the merger is likely to offer synergies. Arcelor has large operations in Latin America focussing on high-quality steel and sells to long-term clients in the auto industry in Europe. On the other hand, Mittal Steel has built formidable capacities in North America through its acquisition of International Steel Group, apart from low quality steel from mills in Asia and Eastern Europe.
Accelerate consolidation
The combined entity would have an annual capacity to produce about 130 million tonnes of steel, three times more than its closest rival-Nippon Steel of Japan. The new entity is expected to close the year with revenues of about $72 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) of $13 billion. While the Mittal-Arcelor combine would control about 10 per cent of global steel output, it may be too early to say if such an exercise would impart pricing power to the steel industry. It is however, likely to accelerate the process of consolidation and bring in an element of price discipline in the global steel sector. This is a positive for steel makers worldwide particularly under the difficult operating environment of spiralling input costs and greater concentration on the suppliers' and customers' side.
Better deal
For Arcelor's shareholders, the Mittal deal was relatively better compared to Arcelor's proposed merger with Severstal. The revised offer by Mittal reflects a 34 per cent improvement over its earlier offer made in January with 57 per cent increase in the cash component— something that the Arcelor Board was pressing hard for. While this gives Mittal a 44 per cent stake in the new entity, it however appears that the steel tycoon may have paid a little more to add yet another feather to his cap. Further, significant free-float in the combined entity (about 51 per cent) is likely to increase the liquidity in the stock.
Steelmakers cheer deal
Stock prices of steel companies across the major steel producing nations moved up, following the announcement of the deal, reinforcing the business logic of the merger. It was no different back home as domestic steelmakers joined the party. With consolidation gaining momentum, albeit at a slower pace, valuations of steel stocks are likely to improve. Such a re-rating is likely to take cue from the following: improved visibility, greater ability to manage cyclicality and increased potential to generate higher returns.
Related Stories: More Stories on : Steel | Mergers & Acquisitions | Focus
Article E-Mail :: Comment :: Syndication :: Printer Friendly Page
|
Stories in this Section |
|
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription Group Sites: The Hindu | Business Line | Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |
Copyright © 2006, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line
|
