Russia
Written on March 23, 2008
Severstal (CHMFq.L: Quote, Profile, Research), Russia’s largest steel maker, will expand its U.S. presence with the $810 million acquisition of the Sparrows Point mill in Maryland, which ArcelorMittal (MT.N: Quote, Profile, Research) is selling for antitrust reasons.
Severstal said on Friday it expected to close the all-cash deal to buy the former Bethlehem Steel unit in the second quarter of 2008. The capacity addition is equivalent to about 20 percent of the company’s crude steel output last year.
“We remain committed to growth in North America and believe in the long-term promise of the U.S. market,” said Severstal Chief Executive and main owner Alexei Mordashov, ranked the world’s 18th-richest man by Forbes magazine.
Severstal is among several steel makers in Russia, the world’s fourth-largest steel producer, to have acquired assets in the United States by taking advantage of a weaker dollar to gain access to one of the world’s major steel-consuming markets.
The company owns the former Rouge Steel plant in Dearborn, Michigan, and the SeverCorr joint venture in Columbus, Mississippi cashadvance.com quick payday loans. But its North American unit was its worst performer in 2007 as a weak market and blast furnace reline hit profits.
Analysts said Severstal, which was advised on the deal by Merrill Lynch & Co (MER.N: Quote, Profile, Research), would have to convince investors the purchase added value, but noted there were opportunities to improve the plant’s efficiency.
“The plant is a good addition to Severstal’s U.S. portfolio of assets bought at attractive prices,” UniCredit Aton equity analyst Dmitry Kolomytsyn said.
He said Sparrows Point had average earnings before interest, tax, depreciation and amortization (EBITDA) of over $110 million in recent years, then dropping to just $24 million in 2007. Severstal expects 2008 EBITDA of at least $74 million, he said.
Filed in: legal.