Updated April 16, 2008

Previous year the transactions volume of mergers and acquisitions (M&A) in the metallurgy has upped by 67% – to $144,7 billion, though their total amount has upped by 6,7% only. They have moved form the ferrous metallurgy to the non-ferrous one together with transactions consolidation. Industry analysts consider that 2007 was the peak year and according to its results one should not expect the serious growth of M&A volume in the metallurgy. Thus, the core intrigue takes place in Russia, around the possible amalgamation of OJSC MMC Norilsk Nickel with Metalloinvest or United Company Rusal.

PricewaterhouseCoopers (PwC) has published the analysis of M&A transactions in the metallurgy in 2007. Their amount has upped by 6,7% only, to 411. However, despite the financial markets’ crisis, the growth is considerably higher in money terms – by 67%, to $144,7 billion. "Scales for transactions in a world metallurgical sector are enormous, despite the turbulence on capital markets", marks Jim Forbs from PwC. The company experts talk about the M&A activity move – from steel corporations to aluminium ones. In 2007 the latter have concluded 56 transactions to $77,3 billion volume, and it is 19 times more as compared to the analogical index in 2006. As a comparison, from 2003 to 2006 M&A have been concluded for only $21,3 billion in this sector.

Almost the half of the "aluminium" M&A volume in money terms has provided Rio Tinto Group having purchased Alcan Inc. for $38,1 billion. PwC experts name the establishment of United Company Rusal (amalgamation of Rusal, SUAL and some Glencore International assets) the second by significance. PwC estimates this transaction at $30 billion. The single significant transaction in a steel segment became the purchase of English-Dutch Corus by the Indian corporation Tata Steel for $11,3 billion. North America occupies the leading positions among the regions both by the amount and the money volume of transactions. Central and Eastern Europe follow it. Thus, if 115 transactions for $77 billion were concluded in North America, so, for example, in Western Europe almost the same amount of transactions (104) – for only $20 billion (see Table below).

PwC Russian practice supervisor John Campbell marks that "the Russian metallurgical companies continue the vigorous activity at the M&A transactions market". He gives an obvious example of the expected amalgamation on MMC Norilsk Nickel basis (Metalloinvest and Rusal claim for it). Georgy Buzhenitsa from Unicredit Aton marks that the transaction scales will be impressive regardless of its form, as the analyst estimates MMC amalgamation with Metalloinvest at $85-100 billion, with Rusal – at $100-115 billion, the tripartite alliance – at $140 billion.

Mr. Campbell names the American companies among the most attractive assets for the Russian capital, as in the USA the rates of demand growth for steel will outstrip the supply and the dollar’s fall has the enormous value. In Jim Forbs opinion, now "the fragmented steel sector looks rather "ripened" for the further consolidation".

Some experts do not expect the activity decline of metallurgists in M&A area this year. CIG analyst Yevgeny Bulanov relates this to the high metals’ prices that permit companies to direct the increasing earnings to assets purchase. "In 2008 is quite obvious the consolidation of small producers by large players, like purchase of Sparrows Point by Severstal or Evraz Group by Claymont Steel", specifies Georgy Buzhenitsa. However, he considers there can be no growth of volumes and transactions amount, as only unprecedented consolidations, like GNP and RIO Tinto, can provide it. However, Finam Investment Company analyst Denis Gorev names such transaction unlikely, as then appears a monopolist on the range of markets, and that is not favorable for the majority of its participants.

The head of department for industry control of the Federal Antimonopoly Service (FAS) Alexey Ulyanov expects that the Russian companies will be active at the M&A, even not to violate the antimonopoly law. "When we have been approving the Rusal transaction that has, for sure, limited the competition, we have marked the fact of establishment of the number one industry player with great satisfaction", an official explains. Official names the variants of alliances with Norilsk Nickel the 2008 intrigue. "FAS watches the events with great interest and considers the application as established by law after the transaction form will be finally determined", says Mr. Ulyanov. FAS official is skeptic about the M&A with the state participation, about the state holding establishment for special steel production in particular (Rostechnology project). According to his opinion, the metallurgy is not "that kind of industry, where a private capital does not cope with the direct state participation".

Metallurgy M&A structure of the world regions in 2007