OAO Severstal, the Russian steelmaker controlled by billionaire Alexey Mordashov, agreed to sell two plants to Steel Dynamics Inc. (STLD) and AK Steel Holding Corp. (AKS) for $2.33 billion, marking its exit from the U.S.
Severstal’s imminent departure from the U.S. comes amid heightened tensions between America and Russia over Ukraine, where pro-Russian separatists continue to control key cities. Mordashov and Severstal haven’t been targeted by U.S. or European Union economic sanctions. The billionaire’s companies as of April controlled a stake of about 6 percent in OAO Bank Rossiya, which has been targeted by the U.S.
The U.S. steel industry has been dogged by excess capacity and depressed prices since the financial crisis. As of July 14, 21 percent of its capacity was unused, according to data from the American Iron & Steel Institute. U.S. steelmakers have also fought a succession of legal battles to curb cheap imports.
The sale of the Dearborn and Columbus plants completes the dismantling of Severstal’s North American unit, a process that began in 2010 with the sale of plants in Illinois and Ohio. On July 15, Severstal agreed to sell its U.S. coal unit to Canada’s Corsa Coal Corp. for $140 million.
Work on the sale of the Columbus and Dearborn plants started at the end of last year. The company’s shares rose 1.4 percent to close at 306.5 rubles in Moscow.
AK dropped 4.2 percent to $8.46 in New York, while Steel Dynamics gained 12 percent to $20.75, it’s highest price in more than five years.
Steel Dynamics’ $1.63 billion purchase of Severstal Columbus will be funded with a mix of cash and debt, the company said in a statement. Built in 2007, Columbus is one of the newest mini-mills in North America, the Fort Wayne, Indiana-based company said. The plant has a production capacity of 3.4 million tons, boosting Steel Dynamics’ annual steel shipping capacity to 11 million tons.
AK is paying $700 million in cash for the steelmaking assets in Dearborn, it said. The West Chester, Ohio-based company will fund the acquisition by issuing debt and shares, it said in a statement.
AK paid a “fair” price for Dearborn, which will help it’s position in the market for automotive steel, Ignace Proot, an analyst at Sandford C. Bernstein & Co., said in a note.
“We need to understand further the operational synergies Steel Dynamics will realize to support the relatively high price paid for the Columbus facility,” Proot said.
The sales aren’t subject to any financing conditions and are expected to be completed by the end of this year, Severstal said. Bloomberg reported July 19 that Severstal was close to an agreement to sell the plants.
“The sale of Columbus and Dearborn unlocks substantial value to Severstal’s shareholders,” Mordashov, who is chief executive officer of the Cherepovets-based company, said in his company’s statement. Severstal North America had developed into one of the most efficient steel producers in the U.S., he said.
The deals are good for the Russian company, Dmitry Kolomytsyn, an analyst at Morgan Stanley, said by phone from Moscow before today’s announcement. Severstal has been looking for a buyer since December “so the agreement to sell those assets has nothing to do with the Russia-West tensions over Ukraine.”
Severstal may use the proceeds to pay dividends, which will support its share price, Kolomytsyn said.
Evercore Partners Inc. and Citigroup Inc. acted as financial advisers to Severstal. Skadden, Arps, Slate, Meagher & Flom LLP acted as Severstal’s legal adviser. Goldman Sachs Group Inc. acted as financial adviser to Steel Dynamics and Barrett & McNagny LLP provided legal advice.
Credit Suisse Group AG advised AK Steel and Weil, Gotshal & Manges LLP was its legal adviser.
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