Russian steel maker Evraz Group said on Monday it may spend as much as $1.5 billion to buy Delong Holdings Ltd in its first move into China’s giant steel market, the world’s fastest growing.
Evraz said it had agreed to buy a 10% stake in Singapore-listed Delong for $3.9459 per share, with conditional options to increase the stake to 51%, which would trigger an obligation to buy out the other shareholders. “The maximum consideration payable by Evraz will be approximately $1,494 million, assuming full acceptance of the mandatory offer, and the exercise of all outstanding warrants,” Evraz said in a statement. Evraz’s deal with Delong shareholder Best Decade constitutes a 30% premium to the $3.02 last price for Delong shares before they were suspended on Monday awaiting an announcement.
Evraz, partly owned by Russian billionaire Roman Abramovich, has been on a spending spree in recent years, snapping up assets in the Africa, the United States and the former Soviet Union. Now it will have a slice of China’s growth. “This investment by Evraz in the Chinese steel sector, our first in the Asia Pacific region, is a critical strategic move to expand our global footprint,” Evraz Chairman and CEO Alexander Frolov said in a statement. “The Chinese steel market is the largest and fastest growing in the world,” he said.
Merrill Lynch is acting as Evraz’s financial advisor and Allen & Gledhill LLP is acting as legal counsel. After an initial 10% deal with Best Decade and Best Decade shareholders, Evraz has a call option lasting for six months to buy another 32.08% in Delong from Best Decade, which also has a put option at $3.9459 per share. Evraz, Russia’s largest steel maker by domestic volume, said Best Decade shareholders had agreed to sell later another 8.97% of Delong, which has a strong position in China’s Hebei province.
Following that, Evraz will make a mandatory cash offer for the remaining Delong shares at the offer price under the Singapore Code on Takeovers and Mergers. Delong’s head office will remain in Beijing and Evraz said there would not be any immediate management changes. “This potential combination with Evraz has much to offer both companies,” Delong Chairman Ding Liquo said in a statement. “Becoming part of a leading global steelmaker with complementary strengths and markets, we expect to gain scale and more growth opportunities in the current highly competitive steel environment,” Ding said. (Reuters)