June 29, 2007 / 10:35 AM / in 11 years

POSCO, Arcelor Mittal in cooperation talks

SEOUL (Reuters) - South Korea’s POSCO Co. Ltd, (005490.KS), said it was in talks with Arcelor Mittal (MT.N) the world’s No 1 steel maker, over possible cooperation, which may help boost the company’s clout in the global steel industry.

POSCO, the world’s No.4 steel maker, is seen by analysts as vulnerable to a takeover in a wave of consolidation in the global sector, declined to comment on persistent speculation of a possible bid from Arcelor Mittal CELR.PA, but it has in the past rebuffed such talk.

POSCO, the second-largest South Korean company with a market value of around $40 billion, said on Friday it had been discussing cooperation with Arcelor Mittal since a senior official from the world’s top steel maker visited the South Korean company in February.

“Both sides have discussed cooperation in various ways such as overseas projects and raw material development,” said a POSCO official who declined to be named. “But we have made no specific progress and no details have been decided yet.”

The talks follow a Japanese media report earlier this week that said Arcelor Mittal would sign a new partnership deal with Nippon Steel Corp. (5401.T) on technology transfer and capacity expansion.

Steel makers worldwide have signed partnerships, from co-developing mines of iron ore or coal to negotiating raw material prices with miners for more bargaining power.

Analysts said such ties would help Arcelor Mittal, which has a weak background in Asia, to use POSCO’s experience in projects in India and Vietnam, while POSCO may want to join Arcelor Mittal’s various developments in the raw material side of the business.

“The cooperation will also help the steel giants to control global steel supply and prices in the face of rapidly increasing Chinese production,” said Lee Eun-young, an analyst at Mirae Asset Securities.

But any possible partnership would not necessarily remove the takeover threat against POSCO, which is seen as a prime target in the wave of global consolidation that began last year, when India’s Mittal bought Europe’s Arcelor in an hostile bid.

“Mittal seems to lean toward building partnerships with Asian steel makers, rather than seeking M&As, as it does not have much money left for another big purchase,” said Lee. “But it will re-enter the M&A market after few years.”

Roland Junck, a member of Arcelor Mittal’s management board, met POSCO chief Executive Lee Ku-taek in February, leading to speculation about a possible takeover.

POSCO has been focusing on forging alliances with Asian steel makers through cross-shareholding to head off potential hostile takeover bids.

    POSCO and Nippon Steel expanded capital and business ties last year, with Nippon holding 5.32 percent of POSCO and the South Korean company having 3.81 percent of Nippon.

    Mitsubishi Corp. (8058.T), Japan’s largest trading house, in February raised its stake in POSCO by 0.5 percentage point to 1.4 percent.

    POSCO also announced in April a series of stake swap deals with South Korean companies.

    “Higher share prices in POSCO would be a burden for Arcelor Mittal, but POSCO may be still very attractive,” said Kim Kyung-joong, analyst at Samsung Securities.

    Shares in POSCO rose 1.14 percent to 442,000 won by 0452 GMT, outperforming a 0.2 percent gain in the broader market


    Additional reporting by Rhee So-eui

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