JSW Steel Ltd’s chairman Sajjan Jindal met executives of Lucchini SpA in Italy, moving a step closer to a possible buyout of the troubled Italian steel maker that could give it a foothold in the recovering European market, two company officials and a banker said
Sajjan Jindal visited Lucchini’s executives and also met government officials in Italy... They are working on a few transactions and this one is one of them,” said a company executive, requesting anonymity. “Next week another team is visiting Lucchini.” The person said Jindal visited along with the company’s technical executives and inspected the assets of the Italian company. It is being seen as a “done deal unless something comes up”, he added.
However, the JSW spokesperson did not confirm or deny the development. “We don’t offer any comments on market rumours and speculation,” the spokesperson said in an emailed response to a questionnaire. “We keep scanning suitable opportunities which can be a synergy and also fit to us strategically.”
A spokesperson of Lucchini in the Italian town of Piombino said the company cannot comment on the matter.
On 1 May, Reuters reported that Jindal Steel and Power Ltd (JSPL) and JSW Steel, are vying to buy parts of the insolvent Lucchini, citing sources with direct knowledge of the matter. However, JSPL has now pulled out of the race, a senior executive in JSPL said on the condition of anonymity.
A spokesperson at JSPL did not reply to an email asking for a confirmation on its withdrawal from bidding for Lucchini.
An analyst said the likely acquisition could be said to be good for JSW only when the price for the buyout and the assets acquired are known.
“If the plant is acquired at a discount of 60-70% from the thumb rule of $1 billion for a 1 million tonne (mt) steel plant, then it is a good buy,” said Giriraj Daga, senior analyst at Nirmal Bang. “JSW has a history of acquisitions, but the one-time they went wrong was when they bought the US plate and pipe mill when the market was at its peak. Now the cycle is down so they probably think it is a good time to buy assets,” Daga added. Another analyst said it is possible JSW may buy parts of the enterprise such as the service centres in Europe that will provide a synergy with its exports out of India. Or JSW may be specially interested in the speciality steel that Lucchini produces in keeping with its focus on increasing the sales of special steels where margins are higher.
According to the Reuters report, Lucchini’s main facilities include a 2.5 million-tonne-per-year steel complex in Piombino equipped with a blast furnace, and a wire rod mill in Lecco in the north of the country. According to a foreign broker, the enterprise value of Lucchini can be worked out to €1.7 billion (around Rs.13,900 crore) based on a 2005 equity transaction wherein Russia’s Severstal and another company acquired a majority stake in the company.
Formerly owned by Severstal, Lucchini was declared insolvent in 2012 and later placed under “special administration”—a procedure designed to save large firms and avoid heavy job losses, the Reuters report added. It fell victim to the 2008 recession that has cut Europe’s steel demand by about a quarter.
JSW Steel has also bid to buy the Indian assets of UK steel trader Stemcor for $750 million, according to a company executive, but the deal has gone cold owing to the Supreme Court case that has asked for an interim ban on mines in Odisha until an environment and illegal mining case is fully heard.
JSW Steel, India’s third largest steelmaker with an installed capacity of 14.3mt, has outlined a fast strategy for growth via organic and inorganic means and is targetting a total capacity of 40mt in the next decade.
All major steelmakers have expanded their capacities for which they need to find markets overseas as local demand has remained slack. Many of these companies are also eyeing foreign plants to diversify their revenue base.
Source: Live Mint
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