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Severstal and world No. 2 Arcelor have agreed on a merger that will create the world's largest steel producer
Severstal (RTS: CHMF), Russia's largest steelmaker, and world No. 2 Arcelor have agreed on a merger that will create the world's largest steel producer, the companies said Friday. The companies said in a joint press release that the new steel giant "will be the Number 1 steel company in the world with 46 billion euros [$60 bln] in sales ... and 70 million tonnes of production" based on last year's results. Severstal shares surged on news of the merger, with its ordinary shares jumping 9.5% on the RTS, Russia's premier bourse. Under the deal, Severstal's principal shareholder, Alexei Mordashov, will swap his stake in Severstal, Severstal-resurs, and Italy's Lucchini, plus 1.25 bln euros (about $1.62 bln) in cash, for an additional issue of 295 million Arcelor shares, at a rate of 44 euros per share ($56). As a result, Mordashov will have a 32% stake in the merger, with the other 68% being held by Arcelor's current shareholders. The deal has yet to be approved by the Russian antimonopoly agency, and is slated to be completed in July. Arcelor's turnover in 2005 was 32.6 bln euros (about $41.7 bln). Severstal produced 17.1 mln tons of steel in 2005. The sides said they expect a synergic effect from the deal at 590 mln euros with profitability levels about 15% and annual dividend payments growing to 7.6 bln. Experts were upbeat over the companies' intention to merge their assets. "This will enable Russian steel to enter new markets, skirting the supply quotas that exist on the European and U.S. markets," Broker Credit Services' analyst Maxim Shein said. Analysts with Prospekt Investors said the deal was likely to be successful, although it has yet to be approved by the companies' shareholders.
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