Evraz Group, one of the world’s largest steel producers, announced an agreement to buy a steel mill, three coke plants and an ore company in Ukraine
Russia’s Evraz Group, one of the world’s largest steel producers, announced an agreement valued at $3 billion to buy a steel mill, three coke plants and an ore company in Ukraine.
Evraz announced Dec. 11 that it would buy from Ukraine’s so-called Privat Group a 99.25 percent stake in the Sukhaya Balka iron ore company and a 95.25 percent stake in Dnipropetrovsk Iron and Steel Works, which has a steel-producing capacity of 1.8 million tons a year. Three Ukrainian coke plants are also to be snatched up by the Russian group in a deal that will give the Ukrainian billionaires behind Privat a stake in Evraz.
Timur Novikov, the first deputy chief executive officer of PrivatBank, Privat Group’s banking unit, was quoted by media on Dec. 12 as saying that the Russian steelmaker will pay $1.7 billion in cash, and the rest – “a little less than 10 percent of Evraz stock,” for a total payment of more than $3 billion.
The final deal to buy up Igor Kolomoisky’s and Gennadiy Bogolyubov’s steel assets, the billionaires who control Privat Group, should be completed in the first quarter of 2008. They will become partners in Evraz, currently controlled by Russian billionaires Roman Abramovich and Alexander Abramov.
“We view this transaction as yet another important step in realizing our strategies,” said Evraz Chairman and CEO Alexander Frolov.
“The acquisition will allow us to increase iron ore self-sufficiency and ensure further upstream integration. This deal also represents another step in the geographical diversification of Evraz into one of the lowest-cost steel-producing regions,” he added.
The final terms and structure of the deal is pending a vote by Evraz’s board of directors based on a fairness opinion provided by a reputable international appraiser’s organization that will independently value the deal’s assets.
The deal follows other acquisitions made in Ukraine within the past years by Russian steel companies. Through deals conducted years ago, Russia’s Rusal group currently controls Ukraine’s Zaporizhya Aluminum and Mykolayiv Alumina plants. Smart-Group, represented by tycoon Vadim Novinsky, this year merged its Ukraine ore plant (Ingulets) and steel mill (Makiyivka Metallurgical) into the Metinvest steel holding controlled by Ukraine’s richest billionaire, Rinat Akhmetov.
Meanwhile, merger and acquisition talks in the steel industry continue to heat up between companies in Russia and Ukraine – two of the world’s top 10 steel-producing countries.
Analysts believe Privat’s sale gels with its strategic consolidation plan, something other large industrial groups, such as the Industrial Union of Donbass Corporation(ISD), are doing.
“What we’re seeing here is Privat divesting assets it doesn’t need, following its plan of restructuring and integrating its assets,” said steel analyst Eugene Cherviachenko of Kyiv-based investment bank Concorde Capital.
“I suspect Privat is focusing on ferroalloys, a strategic decision it made probably five years ago,” he added.
Privat is set to buy a leading Australian mining company, Consolidated Minerals, which would make it a leader on the global ferroalloy market.
Analysts view such deals as normal progression following years of crony capitalism in which tycoons snapped up valuable assets. Now they are seeking to boost shareholder value through strategic partnerships, new acquisitions, restructuring and most notably, merger deals. Consolidation is needed to better compete with world steel giants, including Arcelor Mittal.
“In the 1990s, we had an absorption stage, as business groups bought up everything without any strategic selection.”
“Today, these groups are restructuring via divestment or acquisition as they focus on a particular field. Naturally, they will mature, following their Russian predecessors, through initial public offerings to join the global steel society,” Cherviachenko said.
Two other leading Ukrainian steel groups have held merger talks with Russian counterparts earlier this year.
Billionaire Viktor Pinchuk’s Interpipe, a major steel pipe manufacturer, has mulled a merger with Russian counterpart TMK. ISD, Ukraine’s leading steel producer, has held talks with Gazmetal, controlled by Russian billionaire Alisher Usmanov, a native of Uzbekistan.
