Articles in Category: M&A Activity

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The European Commission has approved a bid from Liberty House Group to purchase a number of ArcelorMittal’s European steelmaking assets.

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“The assets form a divestment package the Company agreed with the European Commission (‘EC’) during its merger control investigation into the Company’s acquisition of Ilva S.p.A.,” ArcelorMittal said in a release.

The assets included in the divestment package are: ArcelorMittal Ostrava (Czech Republic), ArcelorMittal Galati (Romania), ArcelorMittal Skopje (Macedonia), ArcelorMittal Piombino (Italy), ArcelorMittal Dudelange (Luxembourg) and several finishing lines at ArcelorMittal Liège (Belgium).

Transaction closing is “anticipated to occur before the end of the first half of this year,” ArcelorMittal said.

Liberty House Group, headquartered in London and part of the GFG Alliance (led by Executive Chairman Sanjeev Gupta), announced plans to consolidate its global steel assets.

“Following EU approval today for Liberty to acquire seven major European steel plants from ArcelorMittal, the GFG Alliance has announced its intention to integrate most of its Liberty steel, engineering and mining businesses into a single global entity, spanning assets across the UK, Europe and Australia,” the firm said in a release.

“The consolidated business will include all of the UK steel and engineering assets, the integrated Australian Liberty primary steelworks in Whyalla, a number of high-quality Australian iron ore and metallurgical coal mines,  and, once completed, the seven European steel plants being acquired from ArcelorMittal. This merged new group would exclude GFG’s recycling and building products businesses in Australia and the USA.”

Gupta touted the move’s impact on Liberty’s reach.

“We are delighted that the EU has validated Liberty as a suitable buyer for these European steel assets,” Gupta said. “This will make us the third largest steel producer in Europe. We are an ambitious and aspirational group and we keep breaking boundaries. The bringing together of our international integrated steel assets is part of our deliberate, strategic and sustainable expansion.”

Liberty House has been busy on the acquisitions trail over the past year.

In December, Liberty completed the $500 million acquisition of Rio Tinto’s Dunkerque aluminum smelter in France, which Gupta called a “real milestone” in Liberty’s “European investment journey.”

In addition, in January Liberty Steel USA announced the acquisition of Dallas-headquartered Keystone Consolidated Industries (KCI) for $320 million.

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“KCI will be combined with Liberty Steel Georgetown to give Liberty Steel USA a total of up to 1.8m tons per annum of EAF melting capacity, 2m tons per annum of wire rod rolling capacity, significant value-added downstream businesses and over 1,300 employees,” the firm said in a release at the time. “The combined company will have operations in Illinois, Ohio, South Carolina, New Mexico, Texas and Georgia.”

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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:

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This morning in metals news, the Wall Street Journal reported the Brazilian government plans to file charges in relation to the fatal Vale SA tailings dam collapse earlier this year, Tata Steel’s European workers are having doubts about the proposed Thyssenkrupp merger, the U.S. and China reportedly made a breakthrough this week in their ongoing trade talks.

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Brazil to File Charges After January’s Dam Collapse

The Wall Street Journal this week reported the Brazilian government plans to file charges in connection with the collapse of one of miner Vale SA’s tailings dams in January (which left hundreds dead).

The collapse occurred in late January at Vale’s Corrego do Feijao mine in Brumadinho, located in the southeastern state of Minas Gerais.

Second Thoughts

Some Tata Steel employees in Europe are questioning the balance of the planned merger with German firm Thyssenkrupp, Bloomberg reported.

The merger, which is under review by Europe’s competition authorities, would yield Europe’s second-largest steelmaking entity.

“The EWC will continue to support the joint venture only if we consider it to be in the best interests of the workforce at all our sites,” Tata’s work council said in a statement, as quoted by Bloomberg. “Due to these recent developments, we are now unconvinced the joint venture is the best option for Tata Steel Europe.”

U.S.-China Trade Talks

Trade talks between the U.S. and China continued this week, as the two sides aim to reach a resolution to the conflict that boiled over last year to the tune of a total of $360 billion in tariffs on each other’s goods.

The question for many, however, has been about enforcement — whatever deal was reached on paper, the U.S. has sought assurance of compliance.

In that vein, this week the two sides reached an agreement regarding the setup of trade enforcement offices.

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“We’ve pretty much agreed on an enforcement mechanism,” U.S. Treasury Secretary Steven Mnuchin said on CNBC, as quoted by Bloomberg. “We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters. So this is something that both sides are taking very seriously.”

Steel tycoon Lakshmi Mittal’s dream of re-entering the Indian steel market is about to come true.

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After almost a year of legal tussles, the National Company Law Tribunal (NCLT), Ahmedabad bench, gave the green light to ArcelorMittal’s resolution plan for the debt-laden Essar Steel Ltd. The latter was put on the block after lenders asked the court to recover about U.S. $7 billion in dues.

The approximately U.S. $5.9 billion acquisition of the distressed plant, though, has run into one more road block.

Essar Steel Ltd’s ex-promoter Prashant Ruia and two other directors of the erstwhile board of the steelmaker have approached the National Company Law Appellate Tribunal (NCLAT) to thwart the move.

Standard Chartered Bank, a dissenting bank among the Committee of Creditors (CoC) of Essar Steel, has challenged the NCLT’s order.

The bank’s contention was the resolution plan approved by the CoC of Essar Steel favored the secured creditors.

In late January, the same Tribunal had rejected a full debt settlement proposal by shareholders of Essar Steel, ruling that the offer violated Section 12A of the Insolvency and Bankruptcy Code (IBC), which says the promoters can reclaim a company from bankruptcy by paying full settlement, but not after others have submitted their expressions of interest.

This is one more hurdle that Mittal will now have to overcome to take over the mill, which boasts an annual capacity of 10 million metric tons.

A joint venture between Japan’s Nippon Steel & Sumitomo Metal Corp. with ArcelorMittal has offered an upfront cash settlement of about U.S. $ 1 billion and a multimillion-dollar capital infusion as part of the acquisition process.

ArcelorMittal SA is the world’s largest steel company by volume but doesn’t have a steel plant yet in India. Once the formal acquisition is done, Essar Steel’s capacity will immediately make ArcelorMittal the fourth-biggest player in India. The Essar plant is operating at much lower capacity; experts say will need a large influx of funds to run at capacity.

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ArcelorMittal has a presence in 60 countries and an industrial footprint in 18 countries. Mittal has made several attempts in the past to get into the Indian market, but none bore fruit.

In 2010, the company signed an agreement with the Karnataka provincial government to set up a 6 million ton per annum capacity plant, but the land acquisition process itself has taken about eight years.

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This morning in metals news, U.S. Steel announced the restart of construction on an electric arc furnace (EAF) facility, a new £35 million research network aims to make the U.K.’s steel sector carbon-neutral and the latest on the Thyssenkrupp-Tata joint venture.

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An EAF Restart

U.S. Steel announced Monday that it would restart construction on an EAF facility in Fairfield, Alabama.

Per the steelmaker’s announcement, completion of the construction is expected to cost $215 million and will add about 150 jobs.

Research Network Aims for Carbon-Neutral U.K. Steel Sector

A new research network aims to make the U.K.’s steel sector carbon-neutral by 2040, according to the BBC.

Per the report, Swansea, Sheffield and Warwick universities will work together in a £35 million project in an effort toward the carbon-neutral goal.

A Warning for Thyssenkrupp-Tata

As the proposed Thyssenkrupp-Tata Steel joint venture is analyzed by Europe’s competition authorities, one report offers not-so-positive news for the firms.

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According to Reuters, the companies will be warned this week that their joint venture — which would create Europe’s second-largest steelmaker — could be vetoed by Europe’s antitrust regulators unless they offer concessions.

Last year was a big one for a M&A activity in the world of metals.

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According to a report released yesterday by PwC, the total value of metals M&A deals in 2018 hit $53.4 billion — up from $28.1 billion in 2017 — paced by a trio of megadeals (deals of $5 billion or greater).

However, drilling deeper into the numbers and happenings of 2018, the report states political conditions impacted the metals M&A climate.

“While these megadeals drove increased average deal size, the various tariffs imposed on and impacting steel and aluminium (and other downstream products) may have negatively impacted M&A momentum,” the PwC report states. “This may be evidenced by overall deal volume declining in 2018 and favoring within-border transactions compared to 2017. While likely only temporary, the uncertainty caused by the heated geopolitical climate may impact M&A into 2019.”

Average deal size, at $160.5 million, was up 113% from 2017, but down 62% in Q4 2018 compared with Q3 2018.

Deal volume, however, at 163 in 2018, marked a 9% drop from the previous year, and an 18% drop in Q4 from the previous quarter.

The biggest deal of the year was the $6.5 billion purchase of Essar Steel by a joint venture led by ArcelorMittal, as the former had been subject to bankruptcy proceedings under India’s Insolvency and Bankruptcy Code.

Meanwhile, Siyuanhe Iron & Steel Industry Development Equity Investment Fund’s acquisition of Chongqing Changshou Iron & Steel Co. Ltd. for $662.6 million was the largest deal of Q4 2018.

By metal, steel deals accounted for 51% of total deal value in 2018, according to the report, as well as 44% of deal volume.

By region, Asia and Oceania was the most active ground for M&A activity last year, accounting for 68% of total deal value (North America came in second at 22%) and 56% of deal volume.

Speaking to China, specifically, PwC forecasts steel sector consolidation to continue this year.

“While Asia has seen the most M&A activity, the Chinese steel industry continues to struggle with overcapacity and is likely to witness more consolidation in 2019, as the government aims to put 60% of its national steel capacity in the hands of its top ten (mostly state-owned) producers by 2020; up from 33% presently,” the report states.

According to the World Steel Association, China’s crude steel production hit 77.6 million tons in November, up 10.8% year over year despite the start of production curbs for the winter heating season.

PwC cites trade talks between the U.S. and China and the potential ratification of the United States-Mexico-Canada Agreement (USMCA) as factors that could engender a climate of increased M&A activity in 2019.

“The geopolitical climate and continued uncertainty, on the other hand, could lead to companies slowing M&A activity in 2019 and taking time to review their portfolios amidst the uncertainty,” PwC states in its report. “This may lead to an increase in divestitures, which could provide value for both strategic and financial buyers. Other hurdles which may impact M&A activity into 2019 include investor reservations surrounding Brexit (trade relations between the UK and the EU) and the looming United States elections in 2020.”

While there has been some minimal progress between the U.S. and China, the world’s top two economies still appear to be far apart on a number of issues (as MetalMiner’s Stuart Burns posited yesterday). President Donald Trump and President Xi Jinping held talks during the Group of 20 summit in Argentina (held Nov. 30-Dec. 1) and an additional round of talks were held Jan. 7-9 in Beijing. However, another round of talks, which would have brought Chinese officials to Washington, D.C., appears to have fizzled out, according to media reports.

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Should the parties not reach a deal by March 1, the U.S.’s delayed tariff hike — from 10% to 25% on $200 billion worth of Chinese imports announced in September — would likely go into effect, again injecting uncertainty and shaking investor confidence.

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This morning in metals news, the aluminum price slides to a 16-month low, Liberty House could be looking to expand its presence in the Middle East and the mid-February deadline for the Section 232 auto investigation draws nearer.

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Aluminum Drops Post-Sanctions Delisting

The aluminum price continued to fall Monday after last week’s announcement on the delisting of previously sanctioned Russian companies.

According to Reuters, the LME aluminum price dropped 0.5% Monday, continuing the decline after the price hit a 16-month low last week.

Liberty House Continues on the Acquisitions Trail

As we noted last week, Liberty House recently acquired miner Rio Tinto’s Dunkerque aluminum smelter, as Sanjeev Gupta’s GFG Alliance continues to snap up assets.

According to a report in The National, the steel tycoon could now be turning to the Middle East, specifically the U.A.E.

According to the report, which cites a Liberty House official, the company is in talks to buy steel and aluminum assets in the country.

Section 232 Auto Probe Deadline Inches Closer

The Trump administration’s Section 232 investigation of steel and aluminum import levels came to a close in the spring with much fanfare, yielding blanket tariffs of 25% and 10%, respectively.

However, the administration didn’t stop using Section 232 then and there, as it launched yet another 232 probe in May, this time looking into imports of automobiles and automotive parts.

The law requires Secretary of Commerce Wilbur Ross to present a report to the president within 270 days after the launching of a 232 investigation, making for a mid-February deadline.

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In an interview with the Financial Times, Ross said his report is still a “work in progress” but also noted the president’s flexibility in terms of what he can do with respect to potential automotive tariffs.

The recently signed United States-Mexico-Canada Agreement (USMCA), inked during the Group of 20 summit in Argentina, included stricter auto content rules for tariff-free vehicle trade. The new trade agreement bumps the automotive content threshold from 62.5% to 75%. In addition, USMCA included a provision that 40-45% of auto content must be produced by workers making a minimum of $16/hour.

Before we head into the weekend, let’s take a look back at the week that was with some of the stories here on MetalMiner:

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Before we head into the weekend, let’s take a look back at the week that was with some of the stories here on MetalMiner:

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  • Sohrab Darabshaw covered India’s view of the Regional Comprehensive Economic Partnership (RCEP).
  • The oil price has plunged — MetalMiner’s Stuart Burns looked into the reasons why.
  • October global crude steel production jumped 5.8% year over year, according to data in a recent World Steel Association report.
  • A recent Section 301 report by the United States Trade Representative on China’s trade practices painted a familiar picture.
  • Through the first 10 months of the year, steel imports were down 11% compared with the first 10 months of 2017.
  • There is talk of a potential merger between two Chinese steelmakers whose combined annual capacity would exceed that of the U.S. as a whole.
  • Housing starts in October were up from the previous month.
  • General Motors’ announcement this week of plant closures and a 15% workforce reduction could be a sign of cost-saving measures to come for other automotive brands.
  • Several CEOs spoke earlier this week during a panel discussion event in Washington, D.C., focusing primarily on the impact of the U.S.’s steel and aluminum tariffs.
  • Lastly, in case you missed the news earlier today, the U.S., Canada and Mexico signed the United States-Mexico-Canada Agreement during the G20 summit in Buenos Aires (the trade deal still needs to be ratified by each country’s legislature).

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Not before time, China’s steel industry is making some progress towards consolidation.

Although both sides deny talks are taking place, a Reuters article details information received from various sources that suggests state-owned China Baowu Steel Group is in talks to take over rival local Anhui province government-controlled Magang Group.

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The two mills are geographically close to each other, with Magang headquartered in Maanshan city in China’s eastern Anhui province, about a four-hour drive from Shanghai, where Baowu Group is based, the article states.

From a product perspective, the two companies are broadly complementary.

Baowu mainly churns out flat steel products, while Magang’s output is split between flat and long steel products used in construction. There may be some consolidation as a result of the merger, but Baowu’s corporate strategy is to reach 100 million tons of capacity by 2021 from its current 70 million tons, so closing capacity is probably not the primary driver.

Reuters reports that in 2017 Baowu produced 65.39 million tons of steel, while Magang produced 19.71 million tons. Their combined output of 85.1 million tons would be just 11.9 million tons below ArcelorMittal’s production last year and ahead of the U.S. total of 81.6 million tons.

Source: Reuters

The combined group, though, would be a potential rival to ArcelorMittal only in tonnage terms. Globally, the firms are poorly represented, with most of Magang’s production consumed domestically and Baowu exporting just 3.8 million tons from its Baoshan Iron and Steel division last year.

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The merger fits with Beijing’s strategic objective of putting 60% of its national steel capacity in the hands of its top 10 (mostly state) producers by 2020, up from a third presently.

Expect a lot more mergers over the next couple of years as Beijing seeks to curtail capacity form the current 1.1 billion tons to some 980 million tons by 2020.