Hyundai Steel hits record on Arcelor Mittal rumour

SEOUL, May 11 (Reuters) Shares in Hyundai Steel Co. surged more than 14 percent to a record on Friday on speculation that Arcelor Mittal was seeking to take over the .8 billion South Korean firm.

Talk that Hyundai Steel may come into play first surfaced last week when Steel Week, a local industry magazine, speculated in an article that South Korea's second-largest steel firm, after POSCO Co. Ltd, would make a good target for Arcelor Mittal.

The speculation grew to a fever pitch on Friday after Morgan Stanley analysts touted in a research note the ''strategic merits'' behind a tie-up, although they made clear they had ''no knowledge of whether or not any transaction will occur''.

The U.S. investment house estimated that Hyundai Steel could be worth 61,191 won per share in a takeover, valuing the South Korean firm at 5.6 trillion won (.05 billion).

Shares in the steel maker surged 14.44 percent on Friday to 51,500 won, after earlier hitting a record 51,700 won. The gains added 552 billion won to Hyundai Steel's market capitalisation, raising it to 4.4 trillion won (.75 billion).

A spokesman at Hyundai Steel said the firm has not been approached by Mittal while a source familiar with the situation played down talk of Mittal Steel bidding for Hyundai Steel.

Arcelor-Mittal, headquartered in Luxembourg, declined to comment. ''We don't comment on market rumours,'' said a spokesman for the world's largest steel maker.

Arcelor Mittal's deep pockets and its commitment to consolidate the steel industry has prompted continued M&A speculation recently involving takeover targets such as AK Steel , Vallourec or Posco.

The rumours in Seoul come in the same week that Arcelor Mittal was thought to be interested in acquiring AK Steel, triggering a surge in the U.S. steel maker's shares.

South Korean investors have sent up shares of steel makers such as POSCO, the world's third-biggest steel maker, to records this year, believing local firms may become attractive targets amid a consolidation of the global steel sector.

Morgan Stanley said Hyundai Steel, part of the Hyundai Motor Group that also controls South Korea's top auto maker Hyundai Motor Co., would make a more attractive takeover target given that its market value of around billion is a fraction of POSCO's billion.

By buying Hyundai Steel, Arcelor Mittal would gain a steady customer base in Hyundai Motor and its affiliate Kia Motors Corp., Morgan Stanley analysts Jonathan Rhee and Charles C.

Spencer wrote in their note to clients dated Thursday.

Last year, Hyundai Steel announced a plan to build a 5.24 trillion won steel mill by 2010 to ensure stable supplies for the auto maker.

The mill, with a capacity of up to 8 million tonnes, would make Hyundai Steel the world's 10th-largest steel maker.

The U.S. investment house added that Hyundai Steel's shareholder structure, which is partly owned by family members that control the Hyundai Motor Group, would also leave it vulnerable to a takeover.

Shares of the Hyundai Motor Group also surged amid expectations for potential capital gains should Hyundai Steel be taken over, as the group has a complex shareholding structure in which affiliates hold shares in each other.

Hyundai Motor Co., the country's biggest auto maker, rose 2.28 percent to 62,700 won, while shipping firm Glovis Co. Ltd.

surged 14.9 percent to 33,550 won.

REUTERS SR HS2043