Arcelor Mittal acquires Mexico's Sicartsa in $1.4B deal

Arcelor Mittal announced December 20 the acquisition of Sicartsa, a Mexican integrated steel producer, from Grupo Villacero for an enterprise value of $1.439 billion. The two companies will also create together a downstream strategic alliance.

Sicartsa is a fully integrated producer of long steel, with an annual production capacity of approximately 2.7 million tons from its facilities in Mexico and the United States (Texas). Through its wholly owned mine, linked directly to the plant via a slurry pipeline, Sicartsa has estimated iron ore reserves of 160 million tons, providing 30 years of reserves at current production rates.

Arcelor Mittal has also on December 20 entered into a 50/50 commercial joint-venture with Grupo Villacero for the distribution and trading of Arcelor Mittal long products in Mexico and in the southwest of the United States, capitalizing on Villacero’s commercial network.

This is Arcelor Mittal’s first acquisition since the creation of the company earlier this year and demonstrates the merger and acquisition synergies that the alliance created as well as the company’s desire to further consolidate the steel industry. Arcelor Mittal expects this acquisition to generate $80 million of industrial synergies in addition to a further $50 million from commercial, procurement and selling, general & administrative synergies.

Sicartsa is sharing its production site with Mittal Steel Lázaro Cárdenas, offering significant synergy potential, once reunited. Prior to the privatization in 1991 which led to its separation in two entities, the Lázaro Cárdenas steelworks operated as one single integrated site producing both flat and long carbon products. Mittal Steel Lázaro Cárdenas is Mexico’s largest steel producer and slab exporter. The plant has a capacity of 4 million tons per year.

The transaction values Sicartsa at $1.439 billion. For 2004, Sicartsa’s revenue was $956 million, with an EBITDA of $ 248 million. In addition to the integrated steel making facility at Lázaro Cárdenas, the acquisition also includes Metaver, a mini-mill; Sibasa and Camsa, two rolling mills in Celaya, Guanajuato (Sibasa) and Tultitlán, State of Mexico; as well as Border Steel, a mini-mill in Texas. In 2005, Border Steel had net sales of US$110.8 million and an EBITDA of USD 12.5 million. In 2005, Sicartsa saw a drop in its performance compared to 2004 largely due to a strike of 46 days in 2005. The strike has also affected its operations for another four months in 2006.

Aditya Mittal, chief financial officer, Arcelor Mittal said: “This acquisition creates a strong and well-balanced long carbon player in the Americas. With the Mexican market expected to grow by up to 6 percent per year over the next 10 years, this is the ideal time to expand our presence in this country. Through the implementation of rapid technological and best practice transfer, we see significant potential for improving the profitability of Sicartsa. Combining these two facilities creates Mexico’s largest and one of its lowest cost steel producers and further accelerates our growth plans in this exciting region.”

The closing of this transaction is expected during the first quarter of 2007, subject to regulatory and competition approvals.