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The Moscow Times
NLMK to Buy Beta Steel for $400M
Sunday, September 07, 2008
Updated at 05 September 2008 18:35 Moscow Time.
The Moscow Times » Issue 3982 » Frontpage Top
NLMK to Buy Beta Steel for $400M
05 September 2008By John Wendle / Staff Writer
Billionaire Vladimir Lisin's Novolipetsk Steel, or NLMK, the second-largest steelmaker by market value in Russia, said Thursday that it had agreed to pay $400 million in cash for U.S. hot-rolled steel producer Beta Steel.
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: The Moscow Times
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