Canada's Algoma Steel is being acquired by a subsidiary of India-based Essar Global Ltd. in a cash buyout valued at $1.85 billion, the latest in a series of takeovers that has put most of the Canadian steel sector in the hands of foreign firms.
Algoma and Essar said in a joint statement yesterday they had signed an agreement in which the Indian company will buy all outstanding shares of Algoma for $56 apiece. With just more than 32 million common shares outstanding and other securities, the transaction values Algoma at $1.85 billion.
The companies said the cash offer represents a 48-per-cent premium on Algoma's average share price over a 20-day period ended Feb. 14, when the company confirmed it was in discussions about a possible buyout with then-unidentifed parties.
"The board of directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma, said Benjamin Duster, chairman of the steel producer, based in the Northern Ontario city of Sault Ste. Marie.
"This transaction will also benefit Algoma's employees and the city of Sault Ste. Marie as it will result in new ownership that is committed to investment in Algoma's facilities to support growth and business sustainability."
The deal is conditional on the approval of two-thirds of shareholders at a meeting expected to be held in June.
Algoma is an integrated steel company that has focused on rolled steel for the auto, construction and manufacturing industries. It has been regarded as a takeover target for bigger steelmakers in the United States, Europe, Asia or South America amid global industry consolidation. Revenues totalled $1.9 billion in 2006, putting it behind industry rivals such as Dofasco, Stelco and Ipsco in sales.
Essar Global is an international conglomerate operating in six business areas – steel, oil and gas, power generation, communications, shipping and construction, with projected revenues of $10 billion (U.S.) this fiscal year.
Algoma has undergone two court-protected restructurings since the 1990s and previously failed to find a buyer after putting itself up for sale in 2005. A few weeks ago, the company and German steelmaker Salzgitter AG broke off takeover talks and the company began negotiating with other potential buyers.
If the deal closes, the sale would continue the consolidation of the Canadian steel sector, which has seen some of the industry's iconic companies scooped up by bigger rivals or restructured to stay alive.
Dofasco of Hamilton was acquired last year by Europe's Arcelor for $4.7 billion. Arcelor was later bought by Mittal Steel.
Stelco emerged from bankruptcy restructuring and was examined by several potential buyers – including US Steel – as part of that process. Global steelmakers have been consolidating into bigger and bigger players to deal with intense competition, the need for major reinvestment in aging mills and new opportunities in Asia.
Mike DaPrat, president of Local 2251 of the United Steelworkers Union which represents most of Algoma's workers, said word of the agreement has made him "hopeful" the compay will get the research and development it needs and can finally come out of "survival mode."
"Everybody's a little nervous of the unknown. However, I think everyone understands we can't go it alone," DaPrat said.