Chairman of Essar Global, Shashi Ruia, says: "This acquisition fits in with our global steel vision of having world-class, low-cost assets, with a global footprint. Algoma provides us with an excellent platform for the Canadian and North American markets."
The transaction will be effected through a court scheme of arrangement, which requires the support of two-thirds of AlgomaÆs shareholders. An Essar subsidiary will acquire all of the shares of Algoma for C$56.00 per share.
Algoma is an integrated steel producer based in Sault Ste. Marie in Ontario. Last year, it shipped 2.4 million tonnes of steel and reported revenues of C$1.9 billion, derived primarily from the manufacture and sale of rolled steel products.
In mid-February Algoma said it was discussing a sale of the company to Salzgitter AG and that a deal could value the company at less than its traded share price. Then, on March 13, Algoma said discussions with Salzgitter were off, but that it had received overtures from other buyers and might still strike a deal.
Algoma has been on the block for about a year. The company has been restructured twice under court-led bankruptcy proceedings, first in 1991 and again in 2002. In 2006, Algoma struggled with rising costs, growing revenues by just 1% due to a decline in price realisation, while cost of sales grew by 4%. But Algoma managed to remain profitable and indeed grow EPS to C$6.06 compared to C$6.00 in 2005, helped by a capital reduction due to a share buyback and reduced interest expenses. Analysts have commented that Algoma is virtually debt-free making it an attractive acquisition target.
Media speculation regarding potential buyers generally did not include Essar, making the winner the dark horse in the race.
Essar Global is the holding company for the Essar Group and has interests in steel, oil and gas, power, communications (including the groupÆs 33% stake in Hutchison Essar), shipping and logistics, and construction. Essar Steel operates an integrated steel plant in India that produces 4.6 million tonnes per annum and is the country's largest exporter of flat steel.
UBS is advising Essar on the deal, including arranging finance. Genuity Capital Markets is advising Algoma.
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