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Arcelor Mittal buys Mexico's Sicartsa for $1.44 bln

BRUSSELS (Reuters) - Arcelor Mittal MTP.PA, the world's largest steelmaker, expanded its lead position in Mexico on Wednesday with a $1.44 billion purchase and a Russian paper reported it had sought to take control of a Russian rival.

Arcelor Mittal Chief Executive Lakshmi Mittal smiles during a news conference in London on August 4, 2006. Arcelor Mittal, the world's largest steelmaker, expanded its lead position in Mexico on Wednesday with a $1.44 billion purchase and a Russian paper reported it had sought to take control of a Russian rival. REUTERS/Kieran Doherty

Arcelor Mittal ISPA.ASMT.N, whose own $33 billion merger is not complete, announced it had agreed an enterprise value of $1.439 billion with Grupo Villacero for Sicartsa, an integrated producer on the same site as Mittal Steel Lazaro Cardenas.

The combined 6.7 million ton operation should generate industrial synergies of $80 million and gains from commercial, sales and administration of $50 million, Arcelor Mittal said.

“With the Mexican market expected to grow by up to 6 percent per year over the next 10 years this is the ideal time to expand our presence in this country,” Arcelor Mittal Chief Financial Officer Aditya Mittal said in the statement.

Arcelor Mittal shares MTP.PA in Paris rose to a session high of 31.84 euros, a gain of 2.0 percent, before easing back to 31.60 euros, up 1.2 percent. The Dow Jones Stoxx European Basic Resources index .SXPP was 0.7 percent higher.

Michael Shillaker, analyst at Credit Suisse, said the deal had three clear positives.

It followed the sale of long product activities in Europe, following competition concerns, showed Arcelor Mittal was still on the acquisition trail even though it had not completed its own integration and made logistic sense as the Mexican plants were on the same site.

The site operated as one prior to privatization in 1991.

Arcelor Mittal will also create a 50-50 distribution and trading joint venture with Grupo Villacero in Mexico and the southern United States, Arcelor Mittal said in a statement on Wednesday issued in Rotterdam and Luxembourg.

RUSSIAN MOVE?

Separately on Wednesday, Russian newspaper Vedomosti reported that Arcelor Mittal had offered to buy a controlling stake in Russian steelmaker MMK MAGN.MM, which has a market capitalization of $9 billion, according to Reuters data.

Arcelor Mittal declined to comment.

Hermann Reith, an analyst at BHF-Bank, said such a deal, a first foreign purchase of a major Russian steelmaker, could be problematic, as it would involved an outside company taking control of raw materials in Russia.

Arcelor Mittal’s Mexico transaction, which includes a mini-mill and two rolling mills in Mexico and a mini-mill in Texas, is expected to close in the first quarter of 2007, subject to regulatory approval.

Arcelor Mittal will hold a conference call at 1500 GMT.

Sicartsa is a fully integrated producer of long steel, with an annual production capacity of about 2.7 million tonnes from its facilities in Mexico and Texas.

Mittal Steel Lazaro Cardenas is Mexico’s largest steel producer and slab exporter, with a plant capacity of 4 million tonnes per year.

Sicartsa’s revenue was $956 million in 2004, with earnings before interest, tax, depreciation and amortization (EBITDA) of $248 million. It was hit by a strike in 2005.

Sicartsa has a wholly owned mine linked directly to the plant with estimated iron ore reserves of 160 million tonnes, providing 30 years of reserves at current production rates.

For a full story on Arcelor Mittal's reported Russian bid, click on nL20822046.

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