Arcelor Mittal buys Mexico's Sicartsa for $1.44 bn

BRUSSELS, Dec 21: Arcelor Mittal bought a major steel plant in Mexico on Wednesday, giving the world's largest steelmaker a firmer foothold on exports to the United States and sales to the construction sectors.

Arcelor Mittal, whose own $33 billion merger is not complete, said it had agreed an enterprise value of $1.439 billion with Grupo Villacero for Sicartsa, an integrated producer on the same site as Mittal Steel Lazaro Cardenas.

The purchase marks a new chapter in the troubled history of Mexico's largest steel plant, built with huge cost overuns in the 1970s and 1980s. It was sold off soon after being completed and then split between Mittal and Grupo Villacero.

The combined 6.7 million tonne operation should generate industrial synergies of $80 million and gains from commercial, sales and administration of $50 million, Arcelor Mittal said.

''With the Mexican market expected to grow by up to 6 percent per year over the next 10 years this is the ideal time to expand our presence in this country,'' Arcelor Mittal Chief Financial Officer Aditya Mittal said in the statement.

Sicartsa produces steel rod and wire used in the construction sector, which is booming in Mexico thanks to growth in low-cost home building. Last year it exported about 20 percent of its output to the United States.

Arcelor Mittal shares in Paris closed up 2.37 percent at 31.97 euros; their U.S. traded shares closed at $41.78 up 92 percent and in Amsterdam, their shares ended the day at 31.95 euros up 2.31 percent. The Dow Jones Stoxx European Basic Resources index .SXPP> ended down 0.13 percent.

Michael Shillaker, analyst at Credit Suisse, said the deal had three clear positives.

It followed the sale of long product activities in Europe, following competition concerns, showed Arcelor Mittal was still on the acquisition trail even though it had not completed its own integration and made logistic sense as the Mexican plants were on the same site.

Arcelor Mittal will also create a 50-50 distribution and trading joint venture with Grupo Villacero in Mexico and the southern United States, Arcelor Mittal said in a statement on Wednesday issued in Rotterdam and Luxembourg.

RUSSIAN MOVE? Separately on Wednesday, Russian newspaper Vedomosti reported that Arcelor Mittal had offered to buy a controlling stake in Russian steelmaker MMK, which has a market capitalisation of $9 billion, according to Reuters data.

Arcelor Mittal declined to comment.

Hermann Reith, an analyst at BHF-Bank, said such a deal, a first foreign purchase of a major Russian steelmaker, could be problematic, as it would involved an outside company taking control of raw materials in Russia.

Arcelor Mittal's Mexico transaction, which includes a mini-mill and two rolling mills in Mexico and a mini-mill in Texas, is expected to close in the first quarter of 2007, subject to regulatory approval.

Sicartsa is a fully integrated producer of long steel, with an annual production capacity of about 2.7 million tonnes from its facilities in Mexico and Texas.

In recent years Sicartsa has been plagued by poor labor relations, with major strikes in 2005 and 2006.

This year's four-month stoppage led Grupo Villacero to halt steel exports and say it was looking for joint venture and merger options. In April, hundreds of police, many armed, stormed a picket line at the Sicartsa complex, leaving two workers dead and dozens injured.

The union said on Wednesday it welcomed the takeover.

Mittal Steel Lazaro Cardenas is Mexico's largest steel producer and slab exporter, with a plant capacity of 4 million tonnes per year.

Sicartsa's revenue was $956 million in 2004, with earnings before interest, tax, depreciation and amortisation (EBITDA) of $248 million.

Sicartsa has a wholly owned mine linked directly to the plant with estimated iron ore reserves of 160 million tonnes, providing 30 years of reserves at current production rates.

REUTERS