New wave of merger activity on the far horizon for steel industry
By Tom Stundza -- Purchasing, 1/15/2009 2:00:00 AM
The $800 billion steel industry may be on the verge of a new merger wave in which cash-rich major producers would swallow smaller rivals weakened by the 2008–2009 global financial crisis and economic recession.
The recent past has witnessed a series of mega-mergers, with Mittal buying Arcelor to create the world's biggest producer and India's Tata taking over Europe's Corus. Analysts say this process has created a more efficient industry, allowing it to reduce supply swiftly in the face of rapidly falling demand.
Robert Miller, managing director of U.S.-based investment bank Miller Mathis & Co. in New York, tells Reuters that, despite the liquidity crisis, there are further consolidation opportunities in the U.S., Canada, Mexico, Africa and Australia. "There are several potential buyers and sellers already hunting for deals," he says.
Although Miller says consolidations may be imminent, other analysts predict they will have to wait until the end of the financial crisis.
Credit Suisse steel analyst Michael Shillaker in London says it will be "towards the back end of 2009 and through 2010" for the next wave of consolidation among companies that have paid down debt and husbanded cash. In fact, he and other analysts suggest that steelmakers with low debt and lots of cash, rather than the size of the company, will be the most successful in takeovers because outside financing will be hard to find for a while.
ThyssenKrupp and U.S. Steel seem to be in good shape and people look at them as potential acquirers of assets, says Jim Lennon at Macquarie Bank in London tells Reuters.
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