Translated material
Dangerous Unity
Alexey Mordashov: The degree of consolidation in metallurgy is already high
Consolidation of the Russian steel market is possible, but there are no serious economic prerequisites for it yet, - this opinion was expressed at a meeting with journalists by the head and main shareholder of Severstal, Alexey Mordashov. He said that his company is ready for mergers, but only if it increases its value for shareholders. Mr. Mordashov expressed the same position last fall, when the head of the Millhouse company, Evgeny Shvidler, said that the Russian metallurgy industry was ready for consolidation. Answering a direct question from journalists yesterday about whether an alliance between Severstal and Russian competitors is possible, Mr. Mordashov said that “such an alliance is possible,” but it is not yet possible to talk “about any specific negotiations.”“The degree of consolidation of the metallurgical industry in Russia is already quite high,” said the head of Severstal. “There are six large manufacturers of metal products in Russia, all of them large on a global scale.” He expressed confidence that sooner or later even greater consolidation of the Russian steel market will occur. However, he noted that so far “there are no powerful economic prerequisites pushing Russian players to consolidate.” At the same time, he also sees the advantages of possible mergers in the industry, among which he calls “significant cost reduction”, access to resources, simplification of logistics, etc. However, according to Mr. Mordashov, the Russian metallurgy industry does not need too large-scale consolidation: “The emergence of a single player in the industry, given the size of our country and population, is unacceptable - it would be a very dangerous monopoly.”
In general, “economic feasibility” appears to be the main driving force behind decision-making for Mr. Mordashov. And he explains the failure of the deal with Luxembourg-based Arcelor last summer solely by economic reasons. “Mittal gave a premium of 80% to the original price of Arcelor, and the shareholders accepted its offer - this is their right, and we respect it,” said Mr. Mordashov. For Severstal, an increase in the offer for Arcelor would make the deal economically less successful.
At the same time, for Severstal itself, participation in mergers and acquisitions is far from a priority development tool. “Of course, we want to grow,” says Mr. Mordashov and names three areas of the company’s strategic goals. This includes increasing the efficiency of existing facilities, participating in mergers and acquisitions, as well as constructing new facilities.
And apparently, Severstal is targeting acquisitions much more than potential mergers, and is attracting its foreign assets, which it has already acquired sufficient experience in purchasing. The company is interested in “any assets in any regions, provided they contribute to the creation of the company’s value.” Mr. Mordashov stated that he considers the metallurgical assets of Western Europe and North America to be among the most attractive and, moreover, undervalued, and confirmed Severstal’s interest in production in this region: “there is a strong, stable and demanding market” in which the company would be interested work. “But we are also interested in developing markets,” he added, naming, in particular, the regions of Asia, Latin America and, of course, Russia.
Moreover, these markets are interesting not only from the point of view of purchasing existing assets. Alexey Mordashov talks about the possibility of building new production facilities - both in Russia and abroad. True, he clarified that “there are no specific plans yet,” but the company is considering the possibility of creating new capacities. The decisive factor for making a decision will be the analysis of the market that the new production will be aimed at supplying. Its needs and capacity, according to Mr. Mordashov, will determine the range and volume of production. But he stressed that these should be “niche products with high added value.”
The company is now developing the production of just such products. Last year, the Izhora Pipe Plant was launched, producing large-diameter pipes. Severstal intends to offer them for the construction of the Nord Stream gas pipeline. In addition, Severstal is one of the main suppliers in Russia of galvanized sheets for the automotive industry. Taking into account the government’s program for the development of the automobile industry and the arrival of foreign manufacturers in the country, we can expect that in the coming years the demand for these products will increase significantly.
Assessing the past year, Mr. Mordashov said that it was successful for the company. According to preliminary estimates, the company's consolidated production increased by approximately 12%. The past year was important for the formation of a new structure for Severstal: it consolidated all its mining assets within the OJSC, changed the management structure and invited five independent directors to the board.