Articles in Category: M&A Activity
European Union flag

Andrey Kuzmin/Adobe Stack

(Editor’s Note: This is the first of a two-part review of the European steel sector.)

While steelmakers east of Berlin are working to meet rising demand, others are facing myriad technical and regulatory challenges.

Those challenges include a global pandemic that has severely impacted economies, industry watchers and market participants told MetalMiner.

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European steel faces higher costs, environmental restrictions

Steel plants in Central and Eastern European states that are members of the European Union face not only higher costs, but also environmental restrictions that could eventually mean an additional $30-40 per tonne to make steel.

China’s recovery from the coronavirus pandemic has led to increases there in steel production and cheaper imports.

As a result, China’s rebound has further impacted European steelmakers in Central and Eastern Europe.

‘Shifting east’

Foreign metals and mining groups started to acquire plants in Central and Eastern Europe in the late 1990s to early 2000s. Governments in those regions sought to privatize what in many cases were previously state-owned assets.

“The view was that the market was shifting east in terms of manufacturing bases,” as Western European automakers and white goods producers were setting up shop in those countries, one analyst said.

Some of the acquired assets also have either captive raw materials sources or easier access to them. This solved potential supply chain questions and allowed the acquiring groups to redistribute material elsewhere within their own network.

Many of the newer member states that joined from 2004 were also receiving subsidies from Brussels for infrastructure improvements. Those improvements would, in many cases, require steel, the analyst added.

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mergers and acquisitions

Michail Petrov/Adobe Stock

As we noted yesterday, flats and specialty steels producer SSAB is in talks with Tata Steel over potential acquisition of the Indian group’s IJmuiden integrated plant in the Netherlands, the Swedish group confirmed.

“SSAB has participated in several different discussions concerning consolidations in the European steel industry. The discussions with Tata are on-going but no decisions have been made,” SSAB said Nov. 13.

“There can be no certainty that any transaction will materialize, nor as to the terms of any such potential transaction. Further announcement will be made in due course,” the Swedish group added.

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SSAB profile

SSAB’s product assortment includes plates, tubes and special steels. The group’s Luleå plant in northern Sweden produces steel and casts slab for rolling and coating at its Borlänge plant further south in the country.

The company also produces specialty steels at its Oxelösund integrated plant, south of capital city Stockholm, where it also rolls them into finished products.

SSAB acquired Finnish steelmaker Ruukki in 2014. In addition, the group produces plates and hot-rolled coil in the United States via one electric arc furnace at Alabama and at Iowa with a total capacity of 2.4 million tons per year.

SSAB’s IJmuiden interest

SSAB has eyed IJmuiden for at least a year, one analyst familiar with the situation told MetalMiner.

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Airbus plane

dade72/Adobe Stock

Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including the AirbusBoeing subsidy saga, industrial production, Liberty Steel’s bid for German firm Thyssenkrupp’s steel division and much more.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Week of Oct. 19-23 (Airbus-Boeing saga, industrial production and more)

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Sanjeev Gupta’s GFG Alliance and, in particular, its steel and aluminum subsidiary Liberty Steel, is rarely out of the news, it seems.

The firm’s insatiable appetite for bankrupt or struggling metals assets has the market split. One the one hand, boosters are cheering its entrepreneurial spirit. On the other, naysayers are questioning the opaque funding structure and apparently high levels of expensive debt underpinning what they see as a potential house of cards.

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Liberty Steel eyes Thyssenkrupp’s steel business

We are more interested in the implications for the steel market.

Liberty’s latest foray into acquisitions would create a potentially disruptive behemoth in a crowded European market. That market is facing intense foreign competition and declining demand as a result of a pandemic-induced slowdown in manufacturing.

That Thyssenkrupp is desperate to sell its loss-making steel business is not new news.

The steel division has been a major drag on the group. According to the Financial Times, the group is likely lose €1 billion ($855 million) this year.

This year, Thyssenkrupp sold its elevator business for $17 billion in an effort to shore up its finances. The firm has been in talks with other steelmakers, including Sweden’s SSAB and India’s Tata, the Financial Times reported.

So far, however, Thyssenkrupp hasn’t found a buyer that would pass competitions scrutiny.

Which raises the question: will Liberty?

Liberty’s bid

Liberty runs plants and mines across North America, Australia, and India. The firm has global revenues of $15 billion and a workforce of 30,000.

Thyssenkrupp’s beleaguered Steel Europe unit generates sales of approximately €9 billion with 27,000 employees. Together, the firms would become the second-largest steelmaker in Europe, behind only ArcelorMittal.

Logic says in a market suffering poor capacity utilization, rationalization would be one recipe for turning the group around. However, unions and state governments are likely to fiercely resist widespread redundancies.

The German union IG Metall has held demonstrations to oppose job losses and demand government bailouts. Brussels previously denied a Thyssen-Tata merger over fears it would reduce competition. As such, it remains to be seen how it will view a Liberty-Thyssen takeover.

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Ford Motor Co.

Björn Wylezich/Adobe Stock

This morning in metals news: Ford’s China sales posted their largest year-over-year increase in Q3 since 2016; overall automotive sales in China gained 12.8% year over year; and Liberty Steel Group announced it has made an offer to acquire German firm Thyssenkrupp’s steel business.

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Ford’s China sales rise 25.4%

Ford’s China sales rose 25.4% on a year-over-year basis in the third quarter, the automaker reported.

The year-over-year gain in China marked Ford’s strongest sales gain in the market since 2016.

“Ford is strengthening its sales momentum in China by building on growing consumer preference for our iconic brand and favorable product mix of luxury and near-premium utility vehicles,” said Anning Chen, president and CEO of Ford China. “Our localization strategy to produce in China world-class Ford and Lincoln vehicles, including the newly launched Ford Explorer, Lincoln Corsair and Lincoln Aviator, has further enhanced our competitiveness in delivering the best products and services that Chinese consumers are looking for.”

Auto sales in China up again

Meanwhile, overall automotive sales were up in China for a fifth straight month.

Auto sales in the country rose 12.8% year over year in September, according to the China Association of Automobile Manufacturers.

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mergers and acquisitions

iQoncept/Adobe Stock

As we noted earlier this week, the Cleveland-Cliffs acquisition of ArcelorMittal USA came at a price tag of $1.4 billion.

This comes after Cleveland-Cliffs acquired AK Steel earlier this year (among other things, AK Steel is the lone remaining U.S. producer of electrical steel).

The deal includes nearly all of the ArcelorMittal subsidiary’s North American facilities (with a few exceptions, as we will elaborate on shortly). Cleveland-Cliffs expects to close the deal in Q4 2020.

Since the announcement, Cleveland-Cliffs shares are up over 12%.

So, what does the merger mean for the North American metals scene and relevant sectors, like automotive?

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Initial reaction to Cleveland-Cliffs acquisition of ArcelorMittal USA

Overall, this seems to be a solid move for everyone involved.

ArcelorMittal offloads old assets that have a high cost structure for producing steel while still maintaining a mill with one of the lowest cost structures in the country.

On the other hand, Cliffs gains a large auto book of business with good margins. Furthermore, the steel market will see old, expensive capacity taken out. As such, that will make room for new capacity scheduled to come online in the near future.

Strengthening auto position

As noted previously, the acquisition makes Cleveland-Cliffs the largest flat-rolled steel producer in North America. The deal will also make Cleveland-Cliffs — the oldest iron ore mining company in the country — the largest iron ore pellet producer in North America, with 28 million long tons of capacity.

The deal further strengthens the company’s position in the automotive sector. The company likely controls 60%-65% of exposed auto sheet supply (think the steel used on the outside of a car).

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It is not often the world’s largest carmakers engage in mergers and acquisitions among themselves.

Fiat Chrysler and Renault Nissan announced a $35 billion plan to merge back in May 2019. The merger would have created the third-biggest carmaker, behind Volkswagen and Toyota.

But within 10 days of the announcement, FCA pulled out and it came to nothing.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Take two: Fiat Chrysler, PSA to merge

Now, still keen for a tie-up, FCA has announced it will merge with the French group PSA.

PSA is the owner of brands like Peugeot, Citroen, Vauxhall, and DS. The deal, valued at $50 billion, would form a 50/50 partnership with a turnover of some €170 billion ($200 billion) a year and annual production of some 8.7 million units.

As such, the deal would put them, again, third. By other measures, they would be fourth, behind at least Volkswagen and Toyota, and possibly the Renault–Nissan–Mitsubishi Alliance (if you consider that one entity).

The combined FCA-PSA company will be renamed Stellantis. The name comes from the Latin “stello,” meaning “to brighten the stars.” (Yes, I know, who thinks up these names?)

According to AutoExpress, based on 2018 figures, Stellantis will have approximately 46% of its revenues from Europe and 43% from North America. PSA has long held ambitions to expand into North America. As such, a merger with FCA would make that much easier.

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mergers and acquisitions

Michail Petrov/Adobe Stock

Cleveland-Cliffs Inc. has reached an agreement to acquire ArcelorMittal USA, the former announced Monday morning.

Cliffs will acquire ArcelorMittal USA for approximately $1.4 billion.

The deal is expected to close in the fourth quarter, “subject to the receipt of regulatory approval and the satisfaction of other customary closing conditions.”

Cleveland-Cliffs (CLF) shares closed today at $6.56, up 11.6%.

Stop obsessing about the actual forecasted steel price. It’s more important to spot the trend. See why.

Cleveland-Cliffs to become No. 1 flat-rolled steel producer in North America

With the acquisition, Cliffs will become the largest flat-rolled steel producer in North America.

Furthermore, the company will also become the largest iron ore pellet producer, boasting 28 million long tons of annual capacity.

“Steelmaking is a business where production volume, operational diversification, dilution of fixed costs, and technical expertise matter above all else, and this transaction achieves all of these,” said Lourenco Goncalves, president, CEO and chairman of the board at Cleveland-Cliffs. “ArcelorMittal is a world class organization that we have long admired as our customer and our partner, and we know for a fact that they have taken good care of their US assets.”

Steelmaking operations

So, which facilities will move under the Cleveland-Cliffs banner?

In terms of steelmaking enterprises, the acquisition includes the following ArcelorMittal locations:

  • Indiana Harbor
  • Burns Harbor
  • Cleveland
  • Coatesville
  • Steelton
  • Riverdale

The Indiana Harbor plant is the largest fully integrated steelmaking facility in North America, with 7.4 million tons of annual steelmaking capacity.

As for finishing operations, the deal includes:

  • Columbus
  • Conshohocken
  • Double G. Coatings JV (ArcelorMittal USA’s 50% interest)
  • Gary Plate
  • I/N Tek JV with Nippon Steel (ArcelorMittal USA’s 60% interest)
  • I/N Kote JV with Nippon Steel (ArcelorMittal USA’s 50% interest)
  • Piedmont
  • Weirton

Furthermore, the deal also includes two ArcelorMittal mining and pelletizing plants and three metallurgical coal/cokemaking facilities.

In its own statement, ArcelorMittal USA touted the benefits of the deal, namely pointing to the “favourable valuation achieved for ArcelorMittal USA due to the high synergistic potential of the combined company.”

“This transaction is a unique opportunity for ArcelorMittal to unlock significant value for shareholders while retaining exposure to the North American economy through our high-quality NAFTA assets alongside a participation in what will be a stronger, better integrated, US business,” ArcelorMittal President and CEO Lakshmi Mittal said.

Making deals

The latest acquisition is yet another in what has been a busy year for Cleveland-Cliffs on the M&A trail.

In March, Cleveland-Cliffs completed the acquisition of AK Steel.

“This is a new era for Cleveland-Cliffs as a producer of differentiated, high quality iron ore, metallics and steel in North America,” Goncalves said in a release dated March 13, 2020. “The new Cliffs will begin from a unique position of strength in our industry, with a dynamic combination of assets including two efficient integrated blast furnace steel mills, two electric arc furnace plants, a new state-of-the-art HBI plant and several other highly technologically developed facilities. We will be catering to a desirable customer base and primarily doing business in the United States, the most resilient manufacturing economy in the world.”

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

copper smelter

Bombardho/Adobe Stock

This morning in metals news: copper prices gained momentum Wednesday; the rival of German steelmaker Thyssenkrupp rejected the idea of an alliance; and a Pakistani steelmaker is looking to ramp up its output amid a construction spike in the country.

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Copper price momentum

The LME copper price bounced back Wednesday after falling Tuesday, Reuters reported.

The copper price gained 0.2% Wednesday, as stocks fell to a 15-year low, per the report.

As with other materials, recovering Chinese demand continues to support metals prices (including copper).

Salzgitter CEO says company not interested in Thyssenkrupp alliance

The rival of German firm Thyssenkrupp told Reuters it is not interested in an alliance.

Salzgitter CEO Heinz Joerg Fuhrmann said a merger of the two would not improve the company’s standing.

Last year, Stuart Burns delved into Thyssenkrupp’s struggles, including its departure from Germany’s blue-chip DAX index.

In August, Thyssenkrupp reported on the impact of the coronavirus pandemic on its finances (citing the automotive technology fallout, in particular).

Pakistani steel firm aims to augment steel capacity

Per Bloomberg, China-backed steel projects in Pakistan are looking to raise a lot of money and significantly augment their steel capacity.

Agha Steel Industries Ltd. aims to triple its capacity for gray steel bars, Bloomberg reported.

Furthermore, the company plans to raise between 3.6 billion and 5 billion rupees, according to the report.

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mergers and acquisitions

Michail Petrov/Adobe Stock

After considerable speculation about the fate of two said-to-be strategic steel mills in northern France — left over from the rump of British Steel — Sanjeev Gupta’s GFG Alliance/Liberty House Group is reported in the Financial Times as being approved to take over the two plants.

The French had refused to allow their sale to British Steel’s buyers, the Chinese Jingye Group. because of its unique role in supplying rails for the French high-speed rail network and Paris Metro.

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Integrating Hayange, Ascoval mills

The plan will see the Hayange mill in Moselle, which manufactures rails, to be supplied with steel made from recycled scrap at the Ascoval plant in Saint-Saulve.

As a result, Liberty will bring the two together as a combined business.

The group’s largest acquisition to date is the $500 million purchase of Rio Tinto’s Dunkirk aluminum smelter in 2018. The purchase marked a move into an industrial segment in which the group had little prior experience. However, Liberty arguably had much more experience than many private equity companies that buy into assets in which they often have little or no experience.

The smelter operated profitably last year.

Questions still remain, however, over the level of debt and the mechanism used the secure it. In part, the mechanism includes a conventional $350 million loan from a consortium headed by Bank of America.

But in addition, the Financial Times reports, Gupta raised a further higher-risk debt against his stake in the project through BlackRock in January 2019. He secured a $110 million, two-year loan to a holding company above the smelter. The loan included an eye-watering annual interest rate of 14%.

From ‘little known’ to ‘powerhouse’

Impressive as Liberty Group’s rise has been — and let’s face it, we all love a story of entrepreneurial flair — for every success, we have a dozen stories of failure.

Another Financial Times report earlier this year raised questions about GFG’s finances.

In little more than five years, the Financial Times noted, Gupta has gone from a “little known commodities trader” to an “industrial powerhouse.” His industrial empire features $20 billion in annual turnover and 35,000 employees, covering metals, mining, renewable power and more.

Furthermore, his businesses are based across Europe, Australia, and the U.S. Keeping track of such a diverse geographic spread, let alone industrial activities, makes for a challenging management environment.

Financial questions

But it is Liberty’s financial arrangements that have raised the most questions.

Much of its acquisitions are based on often opaque receivables finance structures at high rates of interest.

For example, one of the group’s businesses is InfraBuild, an Australian steelmaker and recycler. Investors in the group are charging the company 12% interest on loans, according to the Financial Times.

A receivables facility three times the size of the €740 million deal price funded Liberty’s purchase of seven European steelworks from ArcelorMittal last year.

The Financial Times reports public filings show this €2.2 billion debt facility could incur up to €660 million of total interest payments. That and other potential costs pose a significant ongoing drain on the group’s profitability. This is particularly relevant as nearly all GFG’s purchases have been for turnaround — that is, previously loss-making projects.

Such rapid growth and such opaque and complex financing arrangements may be less worrisome if supported by transparent financial reporting.

The group claims, however, refers to its status as private enterprise. As such, it argues it is not obliged to reveal granular detail. In short, the complex structure of its intercompany loans and sources of finance are not the market’s business.

But reports of slow payments to suppliers suggest a business in which multiple turnarounds are challenging.

Not just for management — but for finance, too.

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