This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Severstal Sells U.S. Steel Plants for $2.3B

Stocks in this article: STLD AKS

NEW YORK (The Deal) -- Russia's Severstal said Monday, July 21, it has agreed to sell its Dearborn and Columbus steel plants for $2.33 billion in cash, exiting the U.S. just over a decade after it bought its way into the country.

Severstal, which is controlled by CEO Alexey Mordashov, will sell the Columbus, Ohio, mill to Pittsboro, Ind.-based Steel Dynamics (STLD - Get Report) for $1.625 billion and its Dearborn, Mich. mill to AK Steel (AKS - Get Report), of West Chester, Ohio, for $700 million.

The deals are transformational for all three companies, allowing the Russian group to exit underperforming operations at a time when the U.S. steel market remains oversupplied, while increasing the buyers' output by as much as 50%.

"We have been positioning our balance sheet and organizational structure for growth such as this," Steel Dynamics CEO Mark Millet said in a statement. "This acquisition will result in a prudent capital structure that will allow us to again return to our preferred net debt leverage of less than three times trailing Ebitda within a reasonable timeframe."

Steel Dynamics will increase its annual shipping capacity by about 40% to 11 million tons per annum and gain exposure to the oil and automotive sectors, which it expects will outpace wider steel sector growth. The company said the deal will be immediately earnings accretive and will generate an additional $30 million in pretax "earnings synergies" each year.

For AK Steel, the acquisition of the Dearborn plant secures a mill close to customers and increases its exposure to the U.S. automotive industry.

"In addition to operational and productivity enhancements, the acquisition will create purchasing, transportation and overhead cost savings," AK Steel President and CEO James Wainscott said in a statement. "We expect the transaction to be immediately accretive to our earnings and create significant long-term value."

The acquisition will increase AK Steel's output by about 2.5 million tons a year, or about 50%, to 7.5 million tons a year. The combination with its existing operations will result in cost savings of about $50 million a year, about $25 million of which will be realized within a year of the deal closing.

Severstal said in May that it was considering options for the two plants, amid reports that it had received offers of about $1.5 billion for the two plants from suitors including United States Steel Corp. and Brazil's Cia. Siderurgica Nacional SA.

"The deal could reduce Severstal's net debt to Ebitda to 1.3 times, from 1.7 times," noted analysts at Russia's VTB Capital. "We do not rule out the company paying special dividends, as deleveraging is not a pressing issue."

Severstal entered the U.S. in 2004 with the acquisition of the Dearborn plant as part of a $246 million deal for the bankrupt Rouge Industries Inc. The acquisition spurred a $2 billion investment in the U.S. by Severstal, which spent $1 billion refurbishing the Dearborn plant and a further $1 billion to construct the Columbus mill, and followed that up with further acquisitions.

The Russian company believed the U.S. would offer opportunities for growth and higher margins due to its demand for refined steel products. Those hopes soured in the wake of the 2009 financial crisis, which crimped manufacturing of automobiles and the U.S. construction market, leaving the U.S. with surplus capacity that forced Severstal and several other steel makers to idle mills.

By 2011 Severstal began extracting itself from the market with the sale of three mills to Renco Group Inc. for $1.2 billion in cash and assumed debt. Last week Severstal sold its Friedens, Pa.-based PBS Coals Inc. unit to TSX Venture Exchange-listed Corsa Coal Corp. for an enterprise value of $140 million.

"The sale of Columbus and Dearborn unlocks substantial value to Severstal's shareholders," Mordashov said in a statement.

Steel Dynamics will pay for the plant using cash at hand and a $1 billion bridge loan provided by Goldman Sachs Group Inc. AK Steel said it had secured a loan from Credit Suisse Group.

Evercore Group LLC and Citigroup Inc. acted as financial advisers to Severstal. Skadden, Arps, Slate, Meagher & Flom LLP is Severstal's legal adviser.

Steel Dynamics took financial advice from Goldman Sachs. It tapped Barrett & McNagny LLP for legal advice. AK Steel turned to Credit Suisse for financial advice and Weil, Gotshal & Manges LLP for legal counsel.

The deals are expected to close by the end of 2014.

Shares in Severstal traded Monday on the Moscow exchange at 307 rubles, up R5, or 1.6% on their Friday close. The company has a market capitalization of R257 billion ($7.3 billion).

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,416.85 +225.48 1.31%
S&P 500 2,021.25 +19.09 0.95%
NASDAQ 4,683.4070 +45.4130 0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs