Indian firm buys Algoma Steel for $1.85B
Canada's Algoma Steel is being acquired by a subsidiary of India-based Essar Global Ltd. in a cash buyout valued at $1.85 billion, the latest in a series of takeovers that has put most ofthecountry's steel sector in the hands of foreign companies.
Algoma and Essar said in a joint statement Sunday they had signed an agreement in which the Indian company will buy all outstanding shares of Algoma for $56 a share. With just over 32 million common shares outstanding and other securities, the transaction values Algoma at $1.85 billion.
The companies said the cash offer represents a 48-per-cent premium on Algoma's average share price over a 20-day period ended Feb. 14, when the company confirmed it was in discussions about a possible buyout with then-unidentifed parties.
"The board of directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma," said Benjamin Duster, chairman of the steel producer, based in Sault Ste. Marie.
The deal is unanimously endorsed by the Algoma board but requires the approval of two-thirds of shareholders.
The company expects that a shareholders' meeting will be held in June and that the transaction will be completed shortly after.
Algoma is an integrated steel company that has focused on rolled steel for the auto, construction and manufacturing industries. It has been regarded as a takeover target for bigger steelmakers in the United States, Europe, Asia or South America amid global industry consolidation. Revenues totalled $1.9 billion in 2006, puttingit behind industry rivals such as Dofasco, Stelco and Ipsco in sales.
Essar Global is an international conglomerate operating in six business areas — steel, oil and gas, power generation, communications, shipping and construction, with projected revenues of $10 billion USthis fiscal year.
Algoma has undergone two court-protected restructurings since the 1990s and previously failed to find a buyer after putting itself up for sale in 2005. A few weeks ago, the company and German steelmaker Salzgitter AG broke off takeover talks and the company began negotiating with other potential buyers.
If the deal closes, the sale would continue the consolidation of the Canadian steel sector, which has seen some of the industry's iconic companies scooped up by bigger rivals or restructured to stay alive.
Dofasco of Hamilton was acquired last year by Europe's Arcelor for $4.7 billion. Arcelor was later bought by Mittal Steel.
Stelco emerged from bankruptcy restructuring and was examined by several potential buyers, including US Steel as part of that process. Global steelmakers have been consolidating into bigger and bigger international players to deal with intense competition, the need for major reinvestment in aging mills and new opportunities in Asia.
Meanwhile, Ipsco, a major oil and gas steel pipe producer which has extensive operations in Western Canada, has confirmed it's in talks with a potential buyer, believed to be a major Russian company.