Steel Mills

TK USA Purchase – Next Stop the Justice Department

Written by John Packard

Steel Market Update spoke with steel analyst Charles Bradford of Bradford Research about the purchase of the ThyssenKrupp Steel USA assets by the ArcelorMittal/Nippon Steel & Sumitomo Metals Corporation joint venture. We wanted to understand the economics of the purchase as well as what will happen next prior to the closing of the deal.

“ArcelorMittal was the only possible buyer,” he told us in a phone conversation held earlier today. Mr. Bradford told us that ArcelorMittal was the only mill that had the excess slab supply needed to feed the Alabama facility.

Two million metric tons of slabs will come from the ThyssenKrupp CSA mill in Brazil and the balance of the slabs will come from ArcelorMittal plants located in Brazil, Mexico and the United States. The total capacity of the Alabama plant is 4.3 million tons with an additional 1 million tons being dedicated to rolling stainless slabs for the stainless facility located in the building next to the plant.

Mr. Bradford told us, “You can’t justify a $1.5 billion purchase price based on $60 million worth of savings.” The $60 million is what ArcelorMittal calculated and reported they would save by not having to sell their excess slabs into the Asian markets.

AM did not provide any further justification for the purchase of the facility but the market impression has been that they would eliminate one of the lowest priced competitors through this purchase and their subsequent commercial control of the sales from the Calvert operation.

According to the ArcelorMittal conference call with reporters held early this morning, the purchase of the TK USA facility will close during the 2nd Quarter (April-June) 2014. However, first the purchase must be approved by the U.S. Justice Department and Federal Trade Commission to make certain that it does not violate anti-trust guidelines.

Mr. Bradford told SMU that the purchase would fall under the “Hart Scott Rodino Act” which is automatically triggered in cases like this. “It’s an interesting issue from an anti-trust standpoint,” he said. “This will be a complex issue and could take longer than 30 days to come to a conclusion.”

When asked his opinion regarding how the Justice Department may rule Mr. Bradford said, “The Justice Department has to seek something. I would not be surprised if ArcelorMittal has to give up some of its production in the United States.” He went on to say one of the interesting issues could then be what other mill has the interest or capacity to buy (for example) a Cleveland or Indiana Harbor automotive mill. “I don’t know who would buy it,” he told us.

However, on their conference call this morning Mittal sounded as though they were not overly concerned with anti-trust issues. Perhaps the company has already held preliminary discussions with the Department of Justice. It is interesting that within the past ten days, President Obama visited the ArcelorMittal facility in Cleveland.

Mr. Bradford also told us that with both ArcelorMittal and NSSMC being foreign companies the sale may come under the foreign buyer regulations and review.

The ball is now in the U.S. Government hands. The same hands which last ruled on a steel purchase (also involving ArcelorMittal) that the Sparrows Point facility had to be sold due to anti-trust issues dealing with tin plate supply. We all know how that ultimately turned out…

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