March 21, 2008 / 8:04 AM / 11 years ago

UPDATE 2-Severstal buys U.S. Sparrows Point mill for $810 mln

(Adds details, background, analyst comment, share price)

By Robin Paxton

MOSCOW, March 21 (Reuters) - 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)

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