India's Essar to buy Canadian steelmaker Algoma http://www.reuters.com/article/ousiv/idUSN1539744620070416
Sun Apr 15, 2007
NEW YORK (Reuters) - Essar Global said on Sunday it agreed to acquire Canadian steelmaker Algoma Steel Inc. (AGA.TO: Quote, Profile, Research) for C$1.85 billion (US$1.63 billion) in cash in the latest overseas steel acquisition by an Indian company.
Essar said its subsidiary Essar Steel Holdings Limited (ESRG.BO: Quote, Profile, Research) would buy all Algoma shares outstanding for C$56.00 each. The deal value represents a 48 percent premium to Algoma's volume-weighted average stock price for the 20-day period ended on February 14, when Algoma confirmed it was in takeover discussions, the companies said in a statement. The stock had been on the rise on takeover speculation in the days ahead of the company's confirmation.
Essar is paying about 12 times estimated 2007 earnings per share and about 6.3 times estimated earnings before interest, taxes, depreciation and amortization for 2007, according to Reuters Estimates.
Indian steel companies have been looking overseas for acquisitions as demand there and in China in particular has grown. Earlier this year, India's Tata Steel (TSTH.BK: Quote, Profile, Research) agreed to buy Anglo-Dutch Corus Group (CS.L: Quote, Profile, Research) (CS.AS: Quote, Profile, Research) for more than $12 billion after a heated battle.
The move is part of rapid consolidation in the steel industry overall, underscored by the hostile takeover of Arcelor by Mittal Steel (MTBL.BR: Quote, Profile, Research) last year.
Algoma said it plans to hold a shareholder meeting in June and expects the deal to be completed shortly thereafter, if approved by the shareholders.
"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 Algoma.
Algoma posted a fourth-quarter net profit of C$50.4 million, down from C$55.0 million a year ago, mainly because of a decrease in average steel prices and lower shipments. It also said revenue slipped to C$418.4 million from C$477.6 million a year earlier.
Sault Ste. Marie, Ontario-based Algoma, which has been through two court-protected restructurings, also put itself up for sale in 2005 but abandoned the plan later that year.
In February, Algoma Steel had confirmed it was in preliminary talks on being acquired by German steelmaker Salzgitter AG (SZGG.DE: Quote, Profile, Research), but last month it said those talks had been terminated and it was in talks with a number of other parties.
Essar, a diversified, family-owned holdings company with interests from telecoms to construction, also plans to set up three steel plants in the Middle East, including a joint venture to build a 1.5 million tonnes a year steel plant in Iran.
UBS Investment Bank is acting as exclusive financial adviser to Essar and sole arranger of Essar's transaction financing.
Shares of Algoma have risen more than 60 percent this year and closed at C$54.12 Friday on the Toronto Stock Exchange.
(Additional reporting by Caroline Humer)
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