September 16, 2011 / 4:45 PM / 8 years ago

WRAPUP 3-CSN exits Spain deal, Brazil takeover plan dubious

* CSN calls off Spanish deal, citing breach of contract

* Usiminas shareholders deny plans to sell stake to CSN

* Analysts say CEO Steinbruch will not overpay to grow (Adds statement by Spain’s Grupo Gallardo throughout)

By Guillermo Parra-Bernal

SAO PAULO, Sept 16 (Reuters) - Brazilian steelmaker CSN’s (CSNA3.SA) (SID.N) plans to grow through acquisitions encountered multiple setbacks on Friday after a deal in Spain collapsed and its ambitions to buy a stake in Brazilian archrival Usiminas faced a new hurdle.

CSN called off the purchase of the cement and steel assets of Spain’s Grupo Alfonso Gallardo, alleging a breach of contract. The deal, which had been announced in May, involved the purchase of three plants in Spain and one in Germany as well as the assumption of $1.31 billion of debt.

CSN “rescinded the purchase based on the terms previewed in the contract” and is “taking all the measures to defend its rights,” according to a regulatory filing. In a statement to Reuters, Jerez de los Caballeros, Spain-based Gallardo demanded that the deal be completed and denied breaching the accord.

Shares of CSN, the country’s most profitable steelmaker, rose as much as 3.4 percent on Friday after the collapse of the Gallardo purchase eased concerns among investors that the company could overpay for assets to expand overseas. The stock was up 1 percent at 15.90 reais in early afternoon.

The situation highlights the aggressive dealmaking ways of CSN Chief Executive Benjamin Steinbruch, who is also moving to buy his company a seat on the board of much bigger rival Usiminas. (USIM3.SA) (USIM5.SA)

That bid was dealt another blow on Friday after the group of shareholders that controls Usiminas denied they were considering putting part or all of their stakes up for sale. The group includes archrival Nippon Steel (5401.T) and local industrial conglomerates Camargo Correa and Grupo Votorantim.

Shares of CSN have shed 37 percent this year on concern that Steinbruch could launch a spree of acquisitions as he seeks to diversify into mining, cement and logistics. [ID:nN15159666]

An unsourced media report last week said CSN offered Votorantim and Camargo Correa as much as $3 billion for their combined 26 percent voting stake in Usiminas.

CSN has been increasing its stake in Usiminas this year, to press for a board seat at the steelmaker — which is grappling with high flat steel imports, a strong currency and lack of self-sufficiency in raw materials.

Nippon Steel has been reported at odds with CSN over the management of the Namisa iron ore mines. Last year, CSN was trumped by Votorantim and Camargo Correa for control of Portuguese cement maker Cimpor CPR.LS.

Usiminas’ common shares reversed early gains, tumbling 1.9 percent after steelmaker Gerdau (GGBR4.SA), which has also been reportedly involved in a bid for Usiminas, denied any plan to buy a stake in the company.

‘UNFOUNDED REPORTS’

Local media have reported that Porto Alegre-based Gerdau, Brazil’s largest steelmaker, was in talks to acquire the combined stake that Votorantim and Camargo Correa have in Usiminas. Gerdau said in a separate filing that such reports were “unfounded.”

Usiminas’ preferred shares were up 1 percent at 12.26 reais.

CSN had sought to cut the value of the Gallardo deal since May, citing high labor and operational costs. The Spanish group, facing the worst economic crisis in its home market in decades, needed to dispose of the assets to strengthen its capital base. [ID:nN2098501]

Some analysts said the Gallardo asset purchases made sense but posed some risks at a time when the Spanish economy is emerging too slowly from a housing-driven downturn. CSN was expected to use Gallardo’s idled facilities to export steel products for the construction industry and clinker, a raw ingredient for cement, to Brazil.

Grupo Gallardo said in the statement that it filed a suit to an arbitration court demanding that CSN fulfills terms of the contract, in which CSN agreed to buy cement maker Cementos Balboa, rebar mill Corrugados Azpeitia, wire and wire-mesh mill Corrugados Lasao, all in Spain.

Gallardo’s German steelmaking and marketing companies Stahlwerk Thuringene and Gallardo Sections were included in the takeover package.

“Grupo Gallardo understands that CSN failed to respect terms of this deal so it sees no other alternative than initiating arbitration to demand that the accord be fulfilled and an indemnization,” the statement said.

A spokesman for CSN in Sao Paulo did not have knowledge of the Gallardo response, and declined to comment.

CSN’s acquisition plans, which began with CSN’s surprise purchase of Usiminas stock and a sizable stake in Australian miner Riversdale at the end of last year, have brought back memories of Steinbruch’s past actions, which some investors characterize as overpaying for assets and getting tied up in costly bidding wars.

Some of them recalled how shares of CSN plummeted during its failed six-month battle for British steelmaker Corus in 2006 as uncertainty lingered over its international strategy. The stock also suffered during Steinbruch’s failed battle for Portugal’s Cimpor early last year.

Additional reporting by Alberto Alerigi Jr. and Luciana Lopez in Sao Paulo; Editing by Steve Orlofsky, Matthew Lewis and Bernard Orr

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