By Dow Jones Business News,
July 21, 2014, 01:42:00 PM EDT
By John W. Miller and Lukas I. Alpert
MOSCOW--Russia'sOAO 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
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 firstname.lastname@example.org
Corrections & Amplifications
AK Steel is based in Wester Chester, Ohio. An earlier version of this article incorrectly said it was based in
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