By John W. Miller and Lukas I. Alpert
MOSCOW--Russia's OAO Severstal said Monday it will sell its two
U.S. steel mills to Steel Dynamics Inc. and AK Steel Corp. for a
total of $2.325 billion in cash. Once completed, the deal will
knock out the nation's fourth biggest steel producer and one of the
biggest Russian investors in American industry.
AK Steel, which is based in West Chester, Ohio, is paying $700
million for a more-than-one-century-old steel mill in Dearborn,
Mich., that services the Detroit car industry. Steel Dynamics is
acquiring for $1.625 billion a newer mill in Columbus, Miss., that
produces steel for businesses from building houses to drilling for
gas.
With the shake-up, SDI moves up to fourth biggest steel producer
in the U.S., and AK Steel to fifth, behind only U.S. Steel Corp.,
ArcelorMittal and Nucor Corp. The consolidation should help all
U.S. steel companies, which have been battered by global oversupply
and a bad winter.
"This should help firm up prices, once ownership changes," says
John Packard, publisher of Steel Market Update.
The sales will be completed pending regulatory approval,
Severstal said, and are expected to be completed by the end of
2014.
"The sale of Columbus and Dearborn unlocks substantial value to
Severstal's shareholders," said Alexey Mordashov, Severstal's chief
executive.
Severstal had been trying to sell the mills since last year as
it tried to cut costs internationally to focus on its domestic
operations.
The deal comes amid continued instability in Russia's economy
following several rounds of U.S. and European sanctions stemming
from Russia's annexation of the breakaway Ukrainian region of
Crimea and a pro-Russian rebellion in Ukraine's east that Moscow
has been accused of fomenting.
However, officials at the company have said the divestment isn't
a bid to avoid politically-motivated sanctions and that the firms
on each side of the Atlantic have kept separate books, protecting
the firm from sanctions.
Severstal hasn't been targeted by recent sanctions, and analysts
believe the U.S. asset sale isn't directly related to the political
turmoil.
Last week, the U.S. announced another round of sanctions aimed
at cutting certain Russian companies out of Western debt markets
and the EU has signaled it may be ready to impose tougher sanctions
on Russia following the crash of Malaysia Airlines Flight 17 over
eastern Ukraine, allegedly as the result of a missile that Western
governments believe was fired by the Moscow-backed rebels.
The sale also marks a key step for AK Steel, a 114-year-old firm
bidding to ride the upswing in the auto market, and Steel Dynamics,
a fast-growing steel company based in Fort Wayne, Ind., that makes
steel from scrap metal instead of from iron ore and coal. AK Steel
said the deal would allow it to produce over 7.5 million tons a
year.
The sale "furthers our automotive strategy and strengthens our
carbon steelmaking footprint," said AK Steel CEO James
Wainscott.
Severstal bought the Dearborn plant in 2003 from Rouge
Industries for $285.5 million. The facility, which was built by
Henry Ford, has received more than $1 billion in upgrades. It makes
steel from iron ore, coal and other alloy ingredients using the
traditional blast furnace process. However, the mill "rolls more
steel than it makes," meaning AK Steel might have to procure
additional raw steel to process at Dearborn, says Mr. Packard.
Steel Dynamics, founded in 1993 as a "minimill" company that
makes steel from scrap metal, said the acquisition would expand
SDI's production around 40% to 11 million tons.
"The acquisition of Columbus represents a significant step in
the continuation of our growth strategy," stated Chief Executive
Mark Millett.
Opened in 2007, the Columbus plant services industries from
shale gas and construction to automotive and machinery. Columbus
"is probably the best flat-rolled minimill in the country," says
Charles Bradford, an analyst with Bradford Research Inc.
"Unfortunately, its location is poor and it incurs extra freight
costs."
With the sale of the two plants, Severstal exits a U.S. market
it entered aggressively over the past decade. In 2011, it sold
three unprofitable U.S. plants--in Maryland, Ohio and West
Virginia--to family-owned Renco Group Inc.
Write to Lukas Alpert at lukas.alpert@wsj.com
Corrections & Amplifications
AK Steel is based in Wester Chester, Ohio. An earlier version of
this article incorrectly said it was based in Plainfield, Ill.
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