| Severstal and NLMK lost the tender for a stake in Erdemir The world's metallurgical giants were unable to buy the Turkish company Eregli Demir ve Celik Fabrikalari (Erdemir) yesterday. At an open auction for the sale of a state-owned stake (46.12%), which was broadcast live on several television channels, the Turkish industrial conglomerate OYAK won, offering $2.77 billion for this stake. Later, news agencies reported that that OYAK will acquire another 3.81% stake in Erdemir from the Turkish Development Bank for almost $200 million.
The auction was attended by Russian companies - Novolipetsk Iron and Steel Works (NLMK) and Severstal Group (in alliance with the Turkish consortium of Nurol, Limak and Ozaltin), as well as the world giants of the steel industry - Indian Mittal Steel, Luxembourg-based Arcelor and Turkish Eregli Joint- Venture Group.
Severstal dropped out of the Erdemir bidding in the second round, i.e. she offered the least amount for the asset. NLMK held out to the last - it has been supplying the Turkish plant with raw materials for a long time, and it would be logical for it to acquire this asset in order to have control over the entire production chain, and in addition, open access to attractive European and Middle Eastern markets.
Almost immediately after the end of the auction, their participants made similar statements that the asset was, of course, attractive (in 2004, Erdemir’s net profit rose to $589 million from $269 million in 2003, with a record sales volume, and operating profit jumped to $631 million from $93 million received a year earlier), but it turned out to be a bit expensive. Mittal Steel believes that "the price achieved during the auction was contrary to the company's investment standards." Arcelor explained that the price at the auction exceeded the level that would be acceptable for the company's shareholders. At the same time, both companies emphasized their interest in Turkish industry and assured that they would henceforth take advantage of any opportunities to invest in this country.
Severstal issued a statement: “The price for the block of shares put up for tender exceeded the level that we consider financially and economically justified.” And she also promised to “continue studying interesting projects.”
The final price for a non-controlling stake in a not very large enterprise really looks impressively high. And the rational skepticism of bidders who did not want to overpay for an asset that will require significant investments is quite understandable. At the same time, Western analysts who monitored the trading suggested that the price could reach $4 billion, given the rush of interest in Turkey and Turkish industry recently.
After the bidding, the Turkish Privatization Agency recalled that the winner of the deal must fulfill the following conditions: not to lay off more than 5% of Erdemir’s employees in the next two years and to complete the implementation of a $2.7 billion investment program to double the production capacity of the enterprise by 2010 ( Erdemir’s current capacity is 5 million tons of steel per year). In addition, the deal still needs to be approved by Turkey's Supreme Council for Privatization. Anna LANDER |
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