Thursday May 1, 02:15 PM
India steelmaker Essar seals US deal at $1.1 bln
By Penny MacRae
NEW DELHI (AFP) - Indian steelmaker Essar Steel said Thursday it would buy US steel company Esmark Inc, valuing the deal at 1.1 billion dollars, as it pushes ahead with a North American expansion drive.
Essar Steel Holdings Ltd -- part of energy-to-telecoms conglomerate Essar Global Ltd -- has made a friendly offer of 17 dollars a share for loss-making Esmark, which is based in Wheeling, West Virginia.
The deal would mark its third North American acquisition in just over a year, boosting its steelmaking capacity to nearly seven million tonnes in the United States and Canada alone, the company said in a statement.
"This is one more step in realising our global steel vision of having world-class, low-cost assets with a global footprint," said Essar Global chairman Shashi Ruia.
Essar's acquisition of Nasdaq (NASDAQ: news) -listed Esmark, with an annual steelmaking capacity of 2.4 million tonnes, would provide "an excellent platform for the Canadian and North American markets," Ruia said.
In April 2007, Essar Steel bought both Canada's Algoma Steel Inc for 1.63 billion dollars and Minnesota Steel of the US for an undisclosed sum.
Including other projects in Trinidad and Tobago, Essar Steel would "have a flat steel production capacity of 10 million tonnes in the Americas," the company statement said.
Steel prices have surged on strong demand from India and other emerging economies, sparking consolidation in the global steel industry, and Indian steel firms have been among those moving into the spotlight.
In early 2007, Tata Steel bought Anglo-Dutch producer Corus for 13.7 billion dollars in India's biggest-ever foreign takeover.
Essar put the estimated enterprise value of the proposed acquisition at 1.1 billion dollars. Enterprise value is a measure of the theoretical takeover price which includes market capitalisation, debt, cash and short-term investments.
Essar's offer included the assumption of 430 million dollars in debt, Esmark officials were quoted as saying by US media.
The bid represented a 13 percent premium to the closing share price.
The offer was "unanimously accepted" by Esmark's board and now is subject to "customary" US government and union approvals, Essar said.
The acquisition would give the Indian company Wheeling-Pittsburgh Steel, a struggling integrated steel mill which makes products for the automotive and appliance sectors along with a distribution network in the US Midwest.
Essar "plans to make significant investments into Wheeling-Pittsburgh Steel to make it a low cost, technologically advanced steel producer," said Essar Americas president Madhu Vuppuluri.
Esmark said it agreed to the deal because it faced "spiralling raw material and transportation costs, difficulty securing long-term financing commitments and investment challenges associated with maximising" steel production output.
"We were convinced a strategic partner like Essar was the best possible solution for the long-term prospects of the company," Esmark chairman and co-founder James Bouchard said in a statement.
The takeover offer came as Esmark, formed just five years ago, reported it had swung to a full-year net loss of nine million dollars in 2007 from a profit of 3.5 million dollars the previous year.
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