Times Online
Mittal pays $4.8bn for Ukrainian steelworks By Carl Mortished, International Business Editor
MITTAL STEEL has won control of Ukraine's biggest steelworks with a $4.8 billion (£2.7 billion) bid, almost double the price that Mittal offered for the state-owned enterprise in last year's rigged privatisation.
In hotly contested bidding, Mittal trumped its nearest rival, Arcelor, the Franco-Spanish-Luxembourg steel group, for the 93 per cent interest in Kryvorizhstal offered by Ukraine's State Property Fund.
Steel analysts were amazed by the $4.8 billion price, far in excess of the Ukrainian Government's $3 billion target, and some suggested that Mittal is overpaying for the plant. It had been sold in June last year for $800 million to a group connected to Leonid Kuchma, the former President, a notorious deal that became symbolic of the crony capitalism of the former Ukrainian government.
In April, a court declared the sale invalid and the shares were restored to the Government, but communist opponents of President Yuschenko, who came to power in the Orange Revolution last year, campaigned against a sale to foreign investors.
The second auction was broadcast on Ukrainian television and Mr Yuschenko hailed the result. "What happened today shows Ukraine is capable of holding an honest privatisation," he said.
The addition of Kryvorizhstal will boost Mittal's output by 10 per cent, but Lakshmi Mittal, the Indian-born UK-based businessman who controls the steel group, indicated that the iron ore assets of the Ukrainian business were the key to its attraction.
Kryvorizhstal operates a large iron ore mining complex with more than a billion tonnes of reserves and the steel plant is able to supply its entire iron ore needs from the mines.
Mr Mittal said: "It is sitting on captive iron ore mines and it has a low cost base. We believe we can double the mine output." Acquiring Kryvorizhstal would make Mittal the world's fourth-largest iron ore producer, after BHP Billiton, Rio Tinto and CVRD, he noted.
The soaring price of iron ore has put pressure on steel producers, margins, keeping a lid on profits at a time of rising demand for steel. A trio of mining companies control most of the world's iron ore output, securing an unprecedented 73 per cent price rise in the annual price negotiations in February.
The Ukrainian mine may give Mittal a strategic advantage, reducing its reliance on supplies from the mining triumvirate. The plant produces seven million tonnes of crude steel a year, but has capacity for ten million tonnes. Its integration within Mittal should bring savings of $200 million.
Mr Mittal is sanguine about the future of the steel price. Steel producers' behaviour has changed, he said, reducing the tendency for boom-bust cycles. "The industry has moved from being volume-centric to becoming profit-centric," he said.