India's Essar To Buy Canadian Steelmaker

India's Essar To Buy Canadian Steelmaker

Ruth David, Forbes Magazine

16th April 2007

MUMBAI - India’s Essar Steel has agreed to acquire Canadian steelmaker Algoma for 1.85 billion Canadian dollars ($1.63 billion) in cash, giving it exposure to North American markets as it seeks to expand globally.

“This acquisition fits in with our global steel vision of having world-class, low-cost assets with a global footprint. Algoma provides us with an excellent platform for the Canadian and North American markets,” said Shashi Ruia, chairman of the holding company Essar Global.

The offer price of C$56 ($49) per share is 3.5% higher than Algoma’s closing stock price Friday. It’s also a premium of 48% to Algoma’s volume weighted average stock price for the 20-day period ending on Feb. 14, when the Sault Ste. Marie, Ontario-based steelmaker confirmed it was in talks that could result in a takeover, the companies said in a statement.

Algoma said that if shareholders approve the deal at a meeting in June, it will be completed shortly thereafter. Germany’s second-largest steelmaker, Salzgitter, terminated takeover talks with Algoma last month.

Essar Steel, which is part of a family owned conglomerate ranging from construction to telecommunications, is India’s third-largest steelmaker, producing 4.6 million tons a year. In February, it partnered with two local companies to build a steel plant in Vietnam, and it has plans to set up three plants in the Middle East.

Algoma, the No. 3 integrated steel producer in Canada with a 15% market share, has been through two rounds of court-protected restructuring. It booked C$221 million ($194 million) in net income in 2006 on C$1.94 billion ($1.7 billion) in revenue.

The deal is the latest in a wave of consolidation in the steel industry in which Indian companies have been active. India’s Tata Steel acquired Anglo-Dutch steelmaker Corus for $11.3 billion in January.

Rising demand for steel in fast-growing India and China, as well as in the U.S., has allowed steelmakers to raise prices globally.

The Indian government estimates domestic demand for steel will grow at over 10% in the next few years as it invests hundreds of billions of dollars to ramp up infrastructure.