Essar snaps up Algoma Steel for $1.55 bn
After Tata Steel and Hindalco, Essar Steel has stitched up a multi-billion dollar acquisition by buying Canadian Algoma Steel for an equity value of $1.55 billion, reports Arun Kumar.
After Tata Steel and Hindalco, Essar Steel has stitched up a multi-billion dollar acquisition by buying Canadian Algoma Steel for an equity value of $1.55 billion.
Algoma is an integrated steel maker based in Ontario and is listed on the Toronto Stock Exchange. The company has cash in balance of around $150 million and the enterprise value of the leveraged buy-out will be around $1.4 billion. “Algoma is a debt-free company. Its assets can be leveraged to finance the deal. Essar needs to fork out around $400-500 million to fund this transaction,” a source close to the deal said.
The deal is the third billion dollar plus purchase by an Indian company in the last three months, the other two being Tata Steel’s acquisition of Anglo-Dutch Corus for $12 billion and Hindalco’s acquisition of US-based Novelis for 5.8 billion. And if Suzlon Energy manages to snap up German REpower, it will be the fourth in a series of high-profile acquisitions by India Inc.
Algoma, which specialises in making steel sheets for the automobile industry, will provide Essar a bridgehead in the Canadian and North American markets, Essar group Chairman Shashi Ruia said. The deal, expected to close in June, will provide Essar access to a number of US car makers like GM and Ford.
The acquisition is part of the Essar's global expansion plans. The group also signed a deal in February with two Vietnamese firms to build a $527 million hot-strip mill.
Shares of Essar Steel climbed 1.7 per cent to Rs 41.2 at close on the Bombay Stock Exchange. The stock has risen 17 per cent this year, valuing the steelmaker at $1 billion. Shares of Algoma rose 26 cents to C$54.12 on April 13 in Toronto. They have gained 63 per cent in the past year on speculation about a purchase.
Announcing the deal, Algoma Steel Chairman Benjamin Duster said, “The board of directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma."
Algoma is an integrated steel producer with shipments of 2.4 million tonnes in 2006 and revenues of $1.7 billion. The C$56 offered per share by Essar Global, which owns 88 per cent of Essar Steel, represents a premium of 48 per cent to Algoma's stock price for the 20-day period ending February 14, 2007, when the company confirmed that it was in discussions regarding a potential transaction.
UBS Investment Bank was the financial adviser to Essar and sole arranger of Essar’s transaction financing. Genuity Capital Markets was the adviser to Algoma and has suggested that the consideration to be received by Algoma shareholders is fair.