Slabs for Oregon

Evraz will supply metal to American railways and pipelines

Evraz Group intends to make an offer within a week to acquire 100% of the shares of American steel producer Oregon Steel Mills for approximately $2.3 billion (or $63.25 per share). The deal has already been approved by the board of directors of the American company, which unanimously recommended shareholders to vote for it. This will be Evraz's first major purchase abroad after the arrival of a new shareholder to the company this summer - Millhouse LLC, controlled by Roman Abramovich and his partners, who immediately promised that Evraz's expansion strategy would be very active. The acquisition of Oregon Steel is an important strategic step for Evraz, experts say, because the American company produces high-value products with high added value and for Evraz, first of all, this is an opportunity to conveniently process its own slabs immediately on the ready market.

Oregon Steel produces approximately 2 million tons of special steel products, including rolled heat-treated thick sheets, hot-rolled steel coils, large and small diameter welded pipes, and profile pipes. In addition, the company's facilities located in the United States and Canada produce steel rails, rods, fittings and seamless pipe products.

Taking into account the range of Oregon Steel, which operates in Canada and the USA, the acquisition of Evraz looks even more attractive: the company will be able to supply the oil and gas sector of these countries, which has recently been rapidly developing. Several multi-billion dollar projects have already been announced to lay pipelines from Canadian hydrocarbon fields to US refineries.

The only thing that confuses analysts is the fairly high price that Evraz intends to offer for the asset. It implies a premium of 22.3% to the weighted average price of shares of the American company over the last three months and a premium of 30.3% over the last six months. The offer agreement between Evraz and the management of Oregon Steel has already been signed. Under its terms, the newly created Evraz subsidiary will make a cash offer to purchase all of Oregon Steel's outstanding common shares and, upon completion of the transaction, will merge with the American company, after which it will become part of the Evraz Group. However, a decline in the steel market is predicted next year, while prices for high-value products, including pipes, will remain high, and therefore the company, apparently, will be able to quickly compensate for its expenses.

The heads of both companies, in a statement published on the Evraz website, recognize the deal as mutually beneficial. “The acquisition of Oregon Steel will create a strong platform for Evraz to enter the North American market, which is one of the most important in the world,” says Alexander Frolov, Chairman of the Board of Directors of Evraz Group. -- We will provide ourselves with a significant presence in the attractive plate market and growing pipe business in the United States and Canada. The combined company will also become the world's leading rail manufacturer. Oregon Steel will benefit from having a reliable source of slabs.” Jim Declusin, President and CEO of Oregon Steel, said: “We are pleased to team up with Evraz and become part of a leading global steel producer. Given the current situation in the global steel market, it is very important to constantly grow and increase our presence in the market through consolidation. We believe this transaction will create new opportunities to share technology, developments and expertise and strengthen our overall leadership position.”

At the end of 2006, the total production volume of Evraz and Oregon Steel will be over 16.8 million tons of steel, and sales volume will exceed 17.4 million tons.

Anna LANDER