OAO Severstal, the Russian steelmaker controlled by billionaire Alexei Mordashov, agreed to sell three U.S. plants to Renco Group Inc., less than three years after acquiring them.
Renco will buy the Russian steelmaker’s plants at Sparrows Point, Maryland; Warren, Ohio; and Wheeling, West Virginia, Severstal said today in a statement. Severstal will receive $125 million in cash, a $100 million secured note and the repayment of $317 million of third-party debt. Renco will also assume $650 million of employee- and environmental-related liabilities.
Severstal purchased the mills in May through August 2008 for a combined $2.2 billion to add capacity as U.S. steel prices surged. The Cherepovets, Russia-based company idled capacity at the three plants in 2009 and 2010 after demand and prices plunged following the global financial crisis.
“We estimate that these three plants have the highest production costs among the company’s U.S. units,” Dmitry Smolin, an analyst at Uralsib Capital in Moscow who rates the shares “hold,” said in a note.
Severstal’s U.S. operations lost $302.5 million before tax and financing in the first nine months of 2010, while its Russian unit earned $1.02 billion, the company said in a quarterly report.
The company already had started dismantling its North American unit. Severstal sold Northern Steel Group for $124 million in May 2010, the company said in a report. It also sold some assets to Esmark Inc. and Aurora Capital Group, a Los Angeles-based private equity firm, last year for undisclosed sums.
Renco has formed a subsidiary called RG Steel LLC to buy the mills, the New York-based company said today in a statement. RG Steel will be the fourth-biggest U.S. flat-rolled steelmaker after the purchase, Renco said.
The United Steelworkers union reached a labor accord with Renco, the company said in its statement. The USW, which represents workers at the three plants, said in a separate release that it welcomes the Renco acquisition.
Severstal Warren, formerly known as WCI Steel Inc., was founded by Renco in 1988 and declared bankruptcy in 2003. The U.S. government sued Renco in February 2006 to force the company to fund WCI’s pension plan. WCI sued Renco and its owner, billionaire investor Ira Rennert, in March 2006 to recover $17 million of payments made to them before the bankruptcy filing.
Wheeling was acquired by Severstal after it trumped a bid from Essar Steel Holdings Ltd. and won union support in 2008.
The three plants have a combined annual capacity of 7.3 million tons, according to Severstal’s 2009 annual report. U.S. Steel Corp., the country’s biggest steelmaker by volume, produced 16.8 million tons that year.
Severstal said the Renco deal will close this month. It retains operations at Dearborn, Michigan and Columbus, Mississippi.
Evercore Partners and Raymond James Associates Inc. are Severstal’s financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP served as legal counsel. UBS AG and Metal Strategies Inc. are Renco’s financial advisers and Cadwalader Wickersham & Taft LLP is its legal counsel.
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