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Last Updated: Sep 5, 2008 - 11:30:13 AM |
Beta, based in Portage, Indiana, will provide unprocessed steel for
NLMK's most recent U.S. acquisition, John Maneely Co., a steel pipe
manufacturer, which it agreed to buy last month for $3.53 billion.
The deal comes amid a drive by Russian steelmakers to acquire North
American assets.
Russia's biggest steelmaker, Severstal, in the last year has spent more
than $1.7 billion on U.S. steel mills, and recently agreed to buy miner
PBS Coals for a further $1.3 billion.
Evraz Group and TMK, the country's biggest steel pipe manufacturer,
have also made U.S. acquisitions in the last year.
"NLMK's strategy is aimed at portfolio diversification and downstream
integration in the core markets of the company, including the European
Union and the United States, because it strengthens NLMK's position and
provides an entry point into an important and high-margin end market,"
a Novolipetsk spokesman said by telephone Thursday.
The spokesman, who spoke on condition of anonymity in line with company
policy, said NLMK did not have any immediate plans to acquire other
U.S. steel firms.
Financed by existing funds and available credit lines, the Beta deal is
expected to close in the fourth quarter of 2008.
The Beta acquisition "completes the creation of a large, vertically
integrated pipe and tube producer in North America comprising the
assets of John Maneely Co., Beta Steel and Duferco Farrell," NLMK said
in its statement.
"On the face of it, the deal appears dilutive because there is low
profitability at Beta steel. At the same time, the asset is
underutilized," said Michael Kavanagh, senior metals and mining analyst
at UralSib.
"If NLMK can increase the utilization of the asset and vertically
integrate the asset with their other US operations, it does make some
strategic sense," he said.
In terms of NLMK's overall strategy, the deal helps as the firm has
"excess slab production and by buying assets higher up the value chain
they reduce their exposure to the commodity slab markets," Kavanagh
said.
Robert Mantse, senior metals and mining analyst at Alfa Bank, said the
acquisition was a "good fit" for NLMK, and noted that Beta was
currently operating at half capacity -- an orders gap that NLMK could
help to fill through its John Maneely acquisition.
In addition to providing hot-rolled steel for John Maneely, Beta --
located in the heart of the so-called Rust Belt in the U.S. Midwest --
will add to the vertically integrated stature of the company by being
located near significant suppliers of scrap metal.
The Midwest accounts for 60 percent of U.S. hot-rolled coil consumption
and 40 percent of scrap generation, NLMK said in its statement.
Also, Beta is located on Lake Michigan, one of the Great Lakes, which
gives it convenient access to the eastern seaboard, as well as allowing
it to be easily supplied by John Maneely's New Jersey-based Atlas
Division.
Beta sold 547,000 metric tons of steel last year, creating revenue of
$324 million with earnings before interest, taxes, depreciation and
amortization of $21 million.
In its statement, NLMK predicted that it would be able to nearly double
annual production of hot-rolled coil production to 1.1 million tons, by
supplying slabs from NLMK's Russian operations.
NLMK, whose first-half net profit rose 44 percent to $1.53 billion year
on year, has annual revenues of about $7.7 billion and employs 70,000
people across Russia, Europe and the United States.
Source:Ocnus.net 2008
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