Deal Is Smaller Than Earlier Offer
By Kendra Marr
Washington Post Staff Writer
Saturday, March 22, 2008
A Russian steelmaker announced yesterday that it would buy the Sparrows Point steel mill southeast of Baltimore for $810 million in cash, fulfilling an antitrust mandate that Arcelor Mittal divest itself of the plant.
The deal is substantially smaller than one that fell apart in December.
The purchase will place Severstal, Russia's largest steelmaker, run by billionaire Alexei Mordashov, among the five largest U.S. steel producers. Sparrows Point is the only integrated flat-rolled steel plant on the East Coast and is the only such plant with its own deepwater port. It is well-positioned between Severstal's facilities in Dearborn, Mich., and a plant under construction in Columbus, Miss., both of which serve the automotive industry.
Sparrows Point has a capacity of 3.6 million metric tons of crude steel and shipped 2.3 million metric tons of finished steel products in 2007, according to Severstal.
"We are broadening our presence in products and markets," said Thomas M. Veraszto, Severstal's senior vice president of corporate development, who is based in Moscow. "It is highly complementary to our existing presence in the U.S."
Mittal Steel, owned by Indian billionaire Lakshmi Mittal, merged with Luxembourg-based Arcelor in 2006 to form Arcelor Mittal, the world's biggest steel company. It agreed to relinquish the Baltimore plant to resolve Justice Department antitrust concerns.
A $1.35 billion sale to a team of three companies led by Esmark, a steel distributor based in Chicago, collapsed in December when the companies failed to secure financing.
"We actually did not take a look in the first round because we expected it to be very expensive," Veraszto said in a telephone interview. "When it fell apart, we thought this . . . is a good opportunity to get this asset at a lower price than before. It's a huge advantage."
The sale is expected to close during the second quarter, said Bill Steers, the North American spokesman for Arcelor Mittal, which is based in Luxembourg.
Severstal will keep the management of Sparrows Point intact and continue to employ the plant's 2,300 workers, Veraszto said.
The company also agreed to enter a collective-bargaining agreement with the steelworkers union.
"This gives them a relationship with United Steelworkers that they didn't have before," said steel analyst Michelle Applebaum of Applebaum Research. "If you're going to be in the steel business in the United States, chances are you need a good relationship with United Steelworkers."
Severstal imports coke, the main fuel in blast furnaces, from China to its U.S. facilities, an expensive endeavor. The company will begin looking for a local supply, Veraszto said.
Severstal will concentrate on improving the plant's infrastructure to make it more efficient and safe, Veraszto said. The plant is running at only two-thirds capacity. Severstal's announcement foresaw "significant business improvements and synergies at Sparrows Point in conjunction with a five-year investment program at the plant."
The changes may have to be more drastic than that, said metal analyst Charles A. Bradford of Soleil Securities.
The Global Warming Solutions Act, which is likely to pass in the Maryland House of Delegates and has backing from Gov. Martin O'Malley, would require a 25 percent statewide reduction of carbon emissions by 2020.
"Significant parts of the plant require huge investments every several years," Bradford said. "You can't count on politicians. At the last minute they could change the rules."
Yet the Baltimore County plant is a boon for Severstal's U.S. business, particularly because of its port, as well as access to highways and rail lines, analysts agreed.
"With the dollar all but collapsed, they have great export as well as import opportunities," Applebaum said.
Bradford said Sparrows Point could also lend its production Severstal's Rouge Steel plant in Dearborn, whose blast furnace was rocked by an explosion in January and will not be completely fixed for two years. The purchase would make it easier to ship steel from Sparrows Point, rather than Russia, for finishing, he said.
"The larger and more global you are, it makes you a more stable entity," Bradford said.
This is not the first time the plant has changed hands.
Bethlehem Steel owned Sparrows Point from the early 1900s until the company declared bankruptcy.
In 2003 the plant was purchased by International Steel Group, which merged with LTV Steel to create the largest U.S. steel producer.
Mittal bought ISG for about $4.5 billion in 2004, merging it with his Ispat International and LNM Holdings. Then in 2006, Mittal merged with Arcelor, prompting the divestment.
For now, Sparrows Point is likely to remain with Severstal.
"I think the acquisition game is slowing down," Bradford said. "The easy pickings have already been taken."
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