Evraz Bets Big on North America

Evraz Group, the country's biggest steelmaker, said Friday that it would pay $4 billion to acquire IPSCO's North American plate and pipe business, making it the biggest deal yet in the company's expansion into the United States and Canada.

As part of the acquisition, Evraz said it would sell some of the U.S. assets to oil and gas pipe maker TMK for $1.7 billion.

Even after the spinoff to TMK, Evraz's net investment of $2.3 billion is the biggest move yet in its North American expansion strategy, which has seen the company snap up key U.S. assets over the last 18 months.

The deal could raise new fears of Russian billionaires taking advantage of their natural resources wealth to snap up assets in the United States, where an economic downturn has raised political sensitivities and increased the incentives to take a hard line.

Helped by a combination of surging steel prices and a depreciating dollar, Evraz said it would acquire IPSCO Canada as well as the United States tube operations from Swedish steel company SSAB for $4.03 billion.

IPSCO Canada -- which has 70 percent of its operations in the United States and 30 percent in Canada -- owns four steel mills, 11 pipe plants, as well as scrap-processing centers and product-finishing facilities in both countries. IPSCO, a steel plate and oil and gas-pipe producer, became a wholly owned subsidiary of SSAB in July.

Of the tube assets being passed on to TMK and its affiliates, businesses worth $1.2 billion are to be transferred this year, with the remaining $500 million coming in 2009.

Irina Kibina, Evraz's head of investor relations, said that, with the purchase, the company had achieved all its planned growth in North America.

"We have a solid business in North America and are in the best position to see the opportunities in infrastructure development," she said.

Evraz decided to find a partner because it did not want to become too highly leveraged in the acquisition, Kibina said.

"This deal will increase our exposure to the attractive energy and infrastructure sectors throughout the region," Evraz chairman and chief executive Alexander Frolov said in a statement.

"We expect substantial synergies from the combination of IPSCO Canada and Evraz's existing North American operations," he added.

TMK chief executive Konstantin Semerikov said the acquisition marked the pipe maker's entry into the North American market and broadened its offerings with higher value-added products.

"[This is] the latest step in the execution of TMK's strategic emphasis on further bolstering our offering in the oil and gas sectors, while expanding our footprint," Semerikov said in a statement.

Evraz said in the statement that the acquisition would be financed through a bridge loan as well as a nonrecourse term loan arranged at the acquired company level. Credit Suisse and Goldman Sachs have been selected to manage the acquisition.

The deal, which is subject to U.S. and Canadian regulatory approval, should be closed by midyear, the company said.

Evraz's depository receipts closed unchanged at $90 in London on Friday, valuing the company at $31.9 billion, Bloomberg reported. Evraz shares have gained 16 percent since the start of the year.

Roman Abramovich, the billionaire Chelsea football club owner, paid $3.1 billion in 2006 for a 41 percent stake in Evraz Group through his Millhouse Capital holding company.

"It was a very good deal," said Dmitry Kolomytsyn, an analyst at UniCredit Aton.

"They've been chasing this company for some time. ... And they managed to sell what they don't need to TMK."

Kolomytsyn said he expected that demand for IPSCO products would remain high because pipelines and railroad tracks needed to be replaced regularly.

And while it would make sense to acquire such assets in Russia, he said, the country's businessmen are currently not interested in giving up their steel holdings.

Evraz paid $2.3 billion in cash last year to acquire Oregon Steel Mills, which was one of the largest investments ever by a Russian company in the U.S. economy.

In December, it bought Delaware-based Claymont Steel Holdings for $565, sending the U.S. steelmaker's share prices spiraling to a record high.

Evraz operates three major steel mills and several mining and coal-producing assets in Russia and has steelworks in the Czech Republic and Italy. It also produces more than 20 percent of the world's primary vanadium products. The metal is used to strengthen steel and titanium for the space and defense industries and is a key ingredient in certain petrochemical products.