ArcelorMittal Consortium Enters Agreement To Acquire Ilva
Zacks Investment Research | Jun 19, 2017 08:40AM ET
ArcelorMittal (NYSE:MT) and its partner Marcegaglia, announced that AM Investco has reached a binding agreement with the Italian government regarding the lease and obligation to purchase Ilva S.p.A. The ancillary documentation will be completed by the end of this month and Intesa Sanpaolo (MI:ISP) will officially join the consortium before the closing of the transaction.
The transaction details of AM Investco’s plans for Ilva include a purchase price of €1.8 billion, with annual leasing costs of €180 million, which will be paid in quarterly installments. The assets of Ilva`s will be primarily leased by AM Investco against the purchase price, with rental payments qualifying as down payments. The period of lease is minimum two years, which is expected to begin by the end of 2017, subject to regulatory approvals.
Per the deal, investments of €2.4 billion will be made over a period of seven years, including industrial capital expenditure (CAPEX) of €1.3 billion, environmental CAPEX of €1.1 billion. This will ensure that Ilva complies with the Integrated Environmental Authorisation (AIA), as recommended by the Italian government.
The environmental CAPEX also includes remediation amount of €288 million, which will be funded from the funds seized by the Italian government from Ilva’s former owners, the Riva Group. Funds will be used to introduce advanced low-carbon technologies in future, including carbon capture and the commitment to use DRI, when the economic sustainability is consistent with the industrial plans.
The deal will systematically increase finished steel shipments to 9.5 million tons by 2023 and crude steel production will be limited to 6 million tons per year, until AIA provisions are complied. The production of crude steel will be supplemented by imported hot rolled coil and slabs to maximize usage of Ilva’s finished steel facilities.
There is also a provision to ensure a smooth transfer of ArcelorMittal R&D, knowledge and intellectual property through a €10 million start-up investment in a new R&D facility centre in Taranto. This will enhance quality, operational efficiency and productivity at Ilva’s facilities. There will also be an asset transfer to AM Investco, which will be without any financial debt, long term liabilities and include net working capital worth €1 billion.
ArcelorMittal believes Ilva would prove to be a good investment without compromising on the strength of its balance sheet. It will provide an opportunity to expand leadership and product offering in Italy, the second-largest steel producing and consuming market in Europe.
ArcelorMittal and Marcegaglia have witnessed a long and fruitful relationship. While the global steel leader, ArcelorMittal, is able to provide strength and management competencies, Marcegaglia not only has a thorough understanding and knowledge of the Italian and European markets, but also a significant presence in it. The companies are confident of their ability to turn the future of Ilva around to make it a sustainable and profitable company.
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The deal is expected to create synergies of €310 million by 2020, excluding impact from volume improvements and fixed cost reductions. Ilva is also expected to be EBITDA accretive to ArcelorMittal in one year, and free cash flow accretive in three years.
ArcelorMittal’s shares lost 26.1% in the last three months, underperforming the Zacks categorized Original post
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