Severstal Buys U.S. Mill for $810M

APThe Sparrow Point steel mill, located on the Patapsco River near Baltimore, is being sold in an all-cash agreement.
Severstal, the country's largest steel maker, will expand its U.S. presence with the $810 million acquisition of the Sparrows Point mill in Maryland, which ArcelorMittal is selling for antitrust reasons.

Severstal said Friday that it expected to close the all-cash deal to buy the former Bethlehem Steel unit in the 2008 second quarter. The additional capacity is equivalent to about 20 percent of the company's crude steel output last year.

"We remain committed to growth in North America and believe in the long-term promise of the U.S. market," said Severstal chief executive and main owner Alexei Mordashov, ranked the world's 18th-richest man by Forbes magazine.

Severstal is among several steel makers in Russia to have acquired assets in the United States by taking advantage of a weaker dollar to gain access to one of the world's major steel-consuming markets. The company owns the former Rouge Steel plant in Dearborn, Michigan, and the SeverCorr joint venture in Columbus, Mississippi. But its North American unit was its worst performer in 2007 as a weak market and blast furnace reline hit profits.

Analysts said Severstal, with Merrill Lynch as adviser on the deal, would have to convince investors that the purchase added value, but that opportunities existed to improve plant efficiency.

"The plant is a good addition to Severstal's U.S. portfolio of assets bought at attractive prices," UniCredit Aton equity analyst Dmitry Kolomytsyn said.

He said Sparrows Point had average earnings before interest, tax, depreciation and amortization of more than $110 million in recent years, then dropping to just $24 million in 2007. Severstal expects 2008 EBITDA of at least $74 million, he said.

Sparrows Point has an annual production capacity of 3.6 million tons of crude steel and has direct access to a deepwater ocean port.

Severstal could potentially plug an annual 800,000-ton supply gap following the closure of an existing U.S. blast furnace with slab from Sparrows Point, Renaissance Capital said.

The plant sold 2.3 million tons of finished products last year and makes hot-rolled, cold-rolled and galvanized sheets, and ranks among the top U.S. suppliers of tin mill products.

The U.S. Justice Department ordered ArcelorMittal, the world's largest steel maker, to sell the mill as a precondition for allowing the merger of ArcelorMittal in order to forestall its gaining a monopoly of the tinplate market.

An earlier $1.35 billion deal to sell Sparrows Point to E2 Acquisition Corp, an entity of steel services company Esmark, collapsed in December.

Severstal last week posted a 33 percent rise in 2007 net profit to $1.94 billion as it enjoyed higher steel prices. But its stock fell after pretax earnings missed forecasts, with EBITDA in North America declining to $21 million.

Severstal's total 2007 crude steel output at 17.5 million tons remained at 2006 levels.