Aperam is front runner to buy Italian steel plant-sources

Fri Apr 12, 2013 1:06pm EDT

* Two private equity firms, a Chinese player also interested

* EU commission vice president backs Aperam consortium's bid

By Silvia Antonioli

LONDON, April 12 (Reuters) - A consortium led by Luxembourg-based stainless steel maker Aperam is the front runner for the acquisition of a stainless steel plant in Terni, Italy, market sources said this week.

The consortium, which besides Aperam, a firm floated by ArcelorMittal in 2011, includes Italian steelmakers Arvedi and Marcegaglia, is expected to place on Friday a binding bid for the acquisition of the Acciai Speciali Terni (AST) plant, in central Italy.

Three other firms though are also still in the running: Chinese steelmaker Tsingshan and private equity firms Apollo and JP Morgan's One Equity Partners, sources said.

Finnish stainless steel maker Outokumpu has to sell the steel mill, one of Europe's most modern, by May 7 to gain approval for the acquisition of ThyssenKrupp's stainless steel branch Inoxum, the previous owner of AST.

"I think the Aperam consortium is the front runner; it is the best solution for the European market," a first industry source said.

"There is a belief in Italy that if a private equity company gets the plant it will downsize it within 3-4 years while they believe that in the Aperam group there is a long term solution where Terni is secured."

Italian unions said they would prefer an industrial participant rather than a financial player to buy the plant to guarantee its competitiveness.

Outokumpu, Aperam, One Equity Partners and Apollo declined to comment on the sale process.

APERAM'S LITTLE MIRACLE?

A solo bid by Aperam, already one of Europe four largest stainless steel players, had been considered unlikely to get past EU antitrust scrutiny.

Its joint proposal with two smaller Italian players, the support of the Italian government and the poor state of the European steel market though are making it more likely to succeed, industry sources said.

"I think (Aperam CEO, Philippe) Darmayan made a little miracle here because he worked together with the Italian state and the Italian state is working to open doors in Brussels. Italy cannot afford another Ilva," the first source said referring to troubled Italian steel plant Ilva, Europe's largest integrated steel mill, which risks having to shut down and cut thousands of jobs.

Antonio Tajani, Vice-President of the European Commission, responsible for Industry and Entrepreneurship also expressed his support for the bid of the European firms.

"I hope the steel plant of Terni goes in the hands of a European consortium," he said.

The European bid also makes sense from a strategic point of view, according to a second source, as Arvedi and Marcegaglia are two of the Terni plant's biggest clients already.

What some doubt is the capability of the three European players, which operate in a fragile market, to raise enough money to win the plant, which in Outokumpu's books has a value of 560 million euros ($735.08 million) but is expected to sell for less, due to weakness in the steel market.

Some workers also fear some output and jobs might be cut in Terni, under Aperam's control, as the firm already operates similar plants in Belgium and the market is heavily oversupplied at the moment.

South Korean steelmaker Posco had also initially showed interest by visiting the Terni mill, a third source at the factory said, but had later lost interest.

THE CHINESE ATTEMPT

Aperam's only industrial competitor in this late phase of the sale is private Chinese stainless steel pipes producer Tsingshan, which last visited the Terni plant two weeks ago, the third source said.

"The Chinese need Terni to get into Europe," he said. "By buying this plant they would also acquire a new range of products."

A fourth source however said the Chinese firm had lost interest in the last few days.

Contacted by Reuters an official at the firm declined to comment on the Terni plant sale but only said: "We don't have a steel plant outside of China. Now the plan is not clear, maybe in the future."

($1 = 0.7618 euros) (Additional reporting by Francesco Guarascio in Brussels and Manolo Serapio in Singapore; editing by Keiron Henderson)

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