Essar buys Algoma for Rs 6,800 cr

Essar Global announced the acquisition of Canadian steel major Algoma in an all-cash deal worth $1.6 billion (nearly Rs 6,800 crore). The acquisition would take place through the wholly owned subsidiary, Essar Steel Holdings. Algoma supplies sheets to US carmakers including General Motors Corp and Ford Motor Co.

Essar Global offered C$56 (Rs 2087.63) a share for the Canadian company, a 48 per cent premium over its 20-day average ended February 14, or seven times Algoma's EBITDA. Tata Steel paid nine times the earnings of Corus group, analysts said.

Algoma had announced on February 14 that it was engaged in talks with buyers that may lead to a change in management control.

The Algoma board backed the offer, which required the approval from at least 66 per cent of the shareholders, according to the Canadian laws.

The deal is expected to be closed by June. UBS is the adviser to Essar Global.

Essar Global Chairman Shashi Ruia said in a statement: "We believe Algoma is an excellent addition to our existing steel business and also offers growth potential. This acquisition fits in with our global steel vision of having world -class, low-cost assets, with a global footprint.

"Algoma provides us with an excellent platform for the Canadian and North American markets. We are impressed with Algoma's management team and look forward to working with them to enhance our industry leadership."

"The board of directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma," Algoma Steel Chairman Benjamin Duster said in the same statement.

With the acquisition of Algoma, Essar will gain access to the US carmakers. Algoma shipped about 2.42 million tonne last year, with about 80 per cent coming from hot-rolled sheet. Essar will also have access to raw materials by virtue of Algoma's 15-year coal supply agreement and a seven-year contract for iron ore.

Algoma is an integrated steel producer based in Ontario, with revenues of C$1.9 billion (nearly Rs 7100 crore).

Essar Steel has a 4.6 million tonne per annum integrated steel capacity in Gujarat.

This is the third major acquisition by Indian metal companies in the foreign markets. Tata Steel recently bought the Anglo-Dutch steel maker Corus group for $12.15 billion, thereby becoming the fifth largest steel company in the world. The Aditya Birla group flagship, Hindalco Industries, bought the Atlanta-based aluminium downstream leader, Novelis, for $3.5 billion.

The shares of Essar Steel did not respond much to the acquisition, gaining merely 1.73 per cent to close at Rs 41.20 on a strong Mumbai market today. Essar Global has an 88 per cent stake in the city-based Essar Steel.