The crisis ruined the deal

NLMK refused to buy an American steel pipe manufacturer

Novolipetsk Iron and Steel Works (NLMK), controlled by entrepreneur Vladimir Lisin, terminated the agreement with the American Carlyle to purchase the steel company John Maneely Co (JMC) for $3.5 billion, Reuter reports. NLMK confirmed this information to Vremya Novostei, but declined to comment. “We are disappointed that NLMK has decided to violate its obligations under the merger deal. However, John Maneely Co is an excellent company with excellent employees and a proven management team. We have many opportunities to continue to grow and strengthen the business,” Daniel Pryor, Carlyle managing director and JMC vice president, said in a statement.

NLMK announced on August 13 its intention to purchase an American asset for $3.53 billion from a group of shareholders, the main of which are the private equity fund Carlyle Group and the Zekelman family. It was said that this is the full cost of the transaction, assuming the absence of debt obligations and free cash on the balance sheet of the acquired company. NLMK planned to complete the transaction, which still must be approved by regulators in the US and Canada, in the fourth quarter of this year. It was supposed to be financed through bank loans, as well as a bridge loan worth $2 billion, which were promised to be issued by Merrill Lynch, Deutsche Bank and Societe Generale. The synergistic effect of JMC's work with other American enterprises of NLMK (primarily with Duferco Farrell Corp. and Sharon Coating, LLC.) was estimated at $35 million per year.

JMC is the largest independent manufacturer of pipe and tubular products in North America with the most diversified sales portfolio of any North American manufacturer. It was created in December 2006 as a result of the merger of John Maneely Company and Atlas Tube, and is a group of 11 production assets located in five US states and Canada, with a total capacity of more than 3 million tons of steel pipes per year. For the fiscal year ended June 30, JMC sold 2.1 million tons of pipe, with revenue of $2.4 billion and EBITDA of $485 billion.

However, a month ago, Carlyle announced NLMK's intention to reduce the price for John Maneely. In connection with this, the American company filed a lawsuit against NLMK in the court of the Southern District of New York, in which it demands to force the defendant to complete the transaction and compensate for the damage caused. The plaintiff also accuses the Russian company of failing to make efforts to secure financing for the purchase of the American pipe manufacturer. Obviously, this is due to the inability to refinance the bridge loan. NLMK was going to issue Eurobonds worth $1.5-2 billion for this purpose, but subsequently abandoned the idea.

Obviously, NLMK will have to pay compensation for breaking the deal. Its side size is not reported. What the prospects for the trial are also still unclear.

NLMK stopped supplying metal products to the GAZ group due to a high level of overdue receivables, a plant representative told RIA Novosti. According to him, NLMK is still negotiating with the remaining debtors and is not stopping supplies. It has not yet been possible to obtain a comment from GAZ representatives. As previously reported, the Magnitogorsk Iron and Steel Works also stopped supplying its products to GAZ due to the company's debt.

Ivan GORDEEV