(Adds details, background, analyst comment, share price)
By Robin Paxton
MOSCOW, March 21 Severstal CHMFq.L, Russia's
largest steel maker, will expand its U.S. presence with the $810
million acquisition of the Sparrows Point mill in Maryland,
which ArcelorMittal (MT.N) is selling for antitrust reasons.
Severstal said on Friday it expected to close the all-cash
deal to buy the former Bethlehem Steel unit in the second
quarter of 2008. The capacity addition is equivalent to about 20
percent of the company's crude steel output last year.
"We remain committed to growth in North America and believe
in the long-term promise of the U.S. market," said Severstal
Chief Executive and main owner Alexei Mordashov, ranked the
world's 18th-richest man by Forbes magazine.
Severstal is among several steel makers in Russia, the
world's fourth-largest steel producer, to have acquired assets
in the United States by taking advantage of a weaker dollar to
gain access to one of the world's major steel-consuming markets.
The company owns the former Rouge Steel plant in Dearborn,
Michigan, and the SeverCorr joint venture in Columbus,
Mississippi. But its North American unit was its worst performer
in 2007 as a weak market and blast furnace reline hit profits.
Analysts said Severstal, which was advised on the deal by
Merrill Lynch & Co MER.N, would have to convince investors the
purchase added value, but noted there were opportunities to
improve the plant's efficiency.
"The plant is a good addition to Severstal's U.S. portfolio
of assets bought at attractive prices," UniCredit Aton equity
analyst Dmitry Kolomytsyn said.
He said Sparrows Point had average earnings before interest,
tax, depreciation and amortisation (EBITDA) of over $110 million
in recent years, then dropping to just $24 million in 2007.
Severstal expects 2008 EBITDA of at least $74 million, he said.
Sparrows Point has the capacity to produce 3.6 million
tonnes a year of crude steel and has direct access to a
deepwater ocean port.
Severstal could potentially plug an 800,000 tonne per year
supply gap resulting from the closure of an existing U.S. blast
furnace with slab from Sparrows Point, Renaissance Capital said.
The plant sold 2.3 million tonnes of finished products last
year and makes hot-rolled, cold-rolled and galvanized sheets,
and ranks among the top U.S. suppliers of tin mill products.
ArcelorMittal (ISPA.AS), the world's largest steel maker,
was ordered to sell the mill by the U.S. Department of Justice
as a condition for the merger through which it was formed due to
the merged company's would-be dominance of the tinplate market.
An earlier $1.35 billion deal to sell Sparrows Point to E2
Acquisition Corp, an entity of steel services company Esmark Inc
ESMK.O, collapsed last December.
Severstal this week posted a 33 percent rise in 2007 net
profit to $1.94 billion as it enjoyed higher steel prices. But
its stock fell after pretax earnings missed forecasts, with
EBITDA in North America declining to $21 million.
Severstal's total crude steel output last year was 17.5
million tonnes, in line with the previous year.
Severstal shares (CHMF.MM) on Moscow's MICEX exchange were
up 1.3 percent at 552.01 roubles at 1155 GMT, in line with the
bourse's metals and mining index .MCXMM.
(Editing by Will Waterman)