The Hindu Business Line : Value of M&A in metals sector zoomed in 2006: Study

Chennai, June 28 The year 2006 saw the aggregate value of deals in the metals sector more than doubling from the previous year, according to ‘Forging Ahead,’ a PricewaterhouseCoopers study of mergers and acquisitions activity in the global metals industry in 2006.

The study also contains an analysis of the major differences in the views of chief executives in the metals sector and those in other industry sectors.

The steel sector once again accounted for most of the deal-making, with 166 transactions collectively worth $70.4 billion, whereas the 165 transactions that took place in 2005 were collectively worth only $27.4 billion, said Mr Jim Forbes, Global Metals Leader, in the report.

There were 224 disclosed deals, marginally fewer than 250 in 2005.

But the aggregate value of these deals was a huge $77.4 billion – more than double the $34.8 billion in the previous year.

The mega-merger that created Arcelor Mittal, the world’s first 100 million-tonne-a-year steelmaker, was responsible for this massive surge in deal values; at $46 billion, it single-handedly accounted for 59 per cent of the total value that was traded in 2006.

“We believe that the consolidation of the sector is far from complete. Arcelor Mittal has made no secret of its ambition to become a 160 million-tonne-a-year producer in five years. It will need to increase its output by about 42 million tonnes a year.

The group has already announced that it plans to add another 20 million tonnes a year,” the study said.

The study also said that despite the fact that Arcelor Mittal now controls about 10 per cent of the world’s steel supply, the industry is still very fragmented.

“The top five steel producers account for less than 20 per cent of the total steel market, a much smaller percentage than their suppliers in the iron ore industry or customers in the automotive industry enjoy.

We, therefore, expect that the large steelmakers will continue to consolidate and expand, both up- and down-stream, to control a bigger share of the steel value chain.” The aluminium sector saw relatively few mergers and acquisitions during the year. There were 33 deals with a total disclosed value of $4.6 billion in 2006, a marginal increase on $4.2 billion in 2005.

The sector has already consolidated to a much greater extent than the steel sector and the top producers command a far bigger share of the market than their steelmaking peers.

“But 2007 is likely to be busier; early in the year, RUSAL and SUAL joined forces with Glencore International to create the world’s largest aluminium producer, a move that may encourage other firms to follow suit.”

Deal-making between companies involved in the production of other base metals was also relatively thin on the ground.

There were 25 transactions with a total disclosed value of $2.4 billion in 2006, substantially less than the 44 deals collectively worth nearly $3.3 billion that occurred in 2005.

The 25 deals were between companies involved in producing non-integrated iron ore, tungsten, molybdenum, copper, metal powder, zinc, lead and other such metals.

The biggest deal was the $575-million acquisition of Thompson Creek Metals, a privately held US firm, by Canada’s Blue Pearl Mining. The purchase offers Blue Pearl Mining considerable synergies and will help it to further its hopes of becoming one of the world’s largest molybdenum producers.

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