***SPOTLIGHT: M&A Meltdown — Severstal NA sale plans stumble

US steelmaking equities ebbed and flowed last week when strange M&A rumours ruffled market feathers. Most were around Severstal’s planned sale of some of its North American assets. Russia’s largest steelmaker is looking to part company with the Wheeling, Warren and Sparrows Point works. Preferably as a package. But the company’s sales strategy isn’t quite going to plan — its Friday deadline for bids seemed certain to pass uneventfully as MB went to press. “My guess is that they are not going to find anyone who wants them as a package deal,” a source with knowledge of the situation told MB sister publication AMM. “They got exactly zero bids to run them as a package.” News of Severstal’s plans to sell these assets has caused plenty of speculation.

US steelmaking equities ebbed and flowed last week when strange M&A rumours ruffled market feathers.

Most were around Severstal’s planned sale of some of its North American assets.

Russia’s largest steelmaker is looking to part company with the Wheeling, Warren and Sparrows Point works. Preferably as a package.

But the company’s sales strategy isn’t quite going to plan — its Friday deadline for bids seemed certain to pass uneventfully as MB went to press.

“My guess is that they are not going to find anyone who wants them as a package deal,” a source with knowledge of the situation told MB sister publication AMM. “They got exactly zero bids to run them as a package.”

News of Severstal’s plans to sell these assets has caused plenty of speculation.

Los Angeles-based hedge fund Aurora Capital Group was one likely purchaser, industry insiders said, putting the company in a combined bid with New York’s Renco Group. Both firms declined comment, however, and a purchase agreement hadn’t emerged early on Friday.

Brazil’s Companhia Siderurgica Nacional (CSN) got fingered as well. The company is trying to increase its presence in the international market.

Speaking in a conference call, financial and investor relations director Paulo Penido identified Western Europe and eastern USA as preferred locations for a potential acquisition.

And sources told MB that CSN was one of the steelmakers Severstal had invited to do due diligence on its American steelmaking operations. The Brazilian company already has a presence there — It owns CSN LLC, a 1 million tpy cold rolled and hot-dip galvanized coil plant in Terre Haute, Indiana.

But CSN is a cautious player when it comes to expansion.

So far, the company’s only other non-Brazilian asset is Lusosider in Portugal, which is able to produce 550,000 tpy of cold rolled coil and hot-dip galv.

“We have the interest to increase our participation in the international market,” he said. “But, if an acquisition happens, it will be well studied, with a lot of care.”

Look at the auction for Anglo-Dutch steelmaker Corus back in 2007. CSN hung back when the bids got too rich, allowing India’s Tata Steel to take control of the company.

There’s no evidence CSN wouldn’t be similarly cautious when it comes to make any other overseas investments.

And the three plants Severstal has put up for grabs aren’t any easy proposition as a package. Running them successfully will require investment, and Severstal has struggled to find the recipe for a successful sale.

“That thing has been hanging out there for a while,” one industry source said. “It’s not an easy sale for them.”

Ceo Alexei Mordashov and his strategy team will probably have to consider other options if they wish to successfully offload the plants.

“I think they’ll probably end up selling them (separately) because no one will want to buy and run all three,” a second source said. “But this is a very complex and difficult puzzle and it’s going to take a long time before it’s solved.”

“This is just the first innings, it has a long way to go,” he said.

And, in the meantime, strange chatter of other steel sell-outs has started to do the rounds.

US Steel shares rose more than 6% on Wednesday on market talk that ArcelorMittal was planning to bid for the company.

Even if glaring antitrust issues are ignored — ArcelorMittal already has a significant share of the US hot rolled coil market — it’s extremely unlikely that the world’s largest steelmaker will make a play for any company.

And, even if it did launch an offer for US Steel, it’s even less likely the bid would be accepted, analysts told MB.

This latest rumour is a symptom of a flaky equity market, they believe. It will be prone more rumours yet as industry insiders struggle to indentify a buyer for Severstal North American plants.

That’s going to take some time. A dramatic change in market conditions notwithstanding, you can probably expect more US merger rumours soon.

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