|
Evraz Pays $2.3Bln for U.S. Steel Firm
Evraz said Monday that it would buy U.S.-based Oregon Steel Mills for $2.3 billion, the latest in the feverish round of steel-industry consolidation that has pushed steel stocks to record highs.
The acquisition is the biggest in the United States by a Russian company and comes one day after Moscow and Washington signed a bilateral deal on Russia's entry into the World Trade Organization.
Evraz is 41 percent owned by Chukotka Governor Roman Abramovich's Millhouse holding.
The Oregon Steel board of directors unanimously blessed the buyout for $63.25 per share, which represents a 7.3 percent premium to Oregon's closing share price on Friday of $58.96. The deal will be offered to Oregon shareholders next week.
"It's a good way for Evraz to move downstream, from making slabs to rolling them into plates and wielding pipes," said Sergei Donskoi, metals analyst at Troika Dialog. But he said the price Evraz was paying "doesn't look cheap."
Mittal Steel, the world's largest steel producer, bought European steelmaker Arcelor following a failed bid from Alexei Mordashov's Severstal. Meanwhile, Kommersant reported Friday that Severstal might be interested in buying U.S. Steel, the grandfather of the industry. U.S. Steel shares have since risen more than 15 percent.
Large, cash-rich Russian companies in commodities, metals and telecoms are beginning to step up the pace of acquisitions in more developed countries. In 2005, Russia ranked third in outward, foreign direct investment, up from 12th place in 2000, according to a recent study by the Economist Intelligence Unit.
Also Monday, Norilsk Nickel said it would acquire the nickel unit of U.S.-based OM Group for $408 million.
The Russian metals industry is expected to benefit from accession to the WTO; a bilateral deal with the United States on Russia's entry into the trade group was signed in Vietnam on Sunday, and multilateral accession talks with WTO members could be finalized as early as next year. Often, Russian companies shopping abroad are interested in markets for goods that can be produced more cheaply in Russia due to cheaper sources of energy and labor.
In acquiring Oregon Steel, Evraz will have a buyer for its excess steel slabs, which are semi-finished products that can be turned into pipes or other products at Oregon's plants in North America. "The margins of Oregon will definitely improve next year because the slabs will come from Russia at lower cost," said Andrei Litvin, a metals analyst at MDM Bank. "Evraz will supply 100 percent of their needs in steel slabs for their plate production."
While the purchase makes sense strategically, analysts said the price Evraz was offering valued Oregon much more highly than other U.S. steel companies.
The $2.3 billion price tag values Oregon at about 13 times its estimated 2006 earnings and implies an enterprise-values-to-EBITDA ratio of 6.5, analysts said. A typical U.S. steel company has a price-to-earnings ratio of 9 and an EV/EBITDA ratio of 4.5 or 5, Litvin said.
Oregon shares could be worth more than some steel companies, however, because it produces pipes, rails and other specialty products rather than steel slabs or rolls. As evidenced by the recent independent public offering of TMK, shares in pipe makers can fetch premium prices because of their value in the expanding oil and gas sector.
|
