Evraz Group, which is Russa’s second largest steel firm, has made a bid to purchase a majority stake of 51% of China’s Delong Holdings. Evraz offered US $765 million to purchase 51% of the company from the majority owner, Best Decade Holdings.
Delong Holdings, operating in Hebei, owns a steel mill in China that manufactures steel billets and coils for use in China and exports. It also owns Dexin Steel, which is a procurement company in Singapore. Delong has been trading on the Singapore markets since 2005. Delong is owned 77% by Best Decade holdings, who will sell a 51% majority stake, but still retain the other 26% after the deal is complete.
Deal to be done in pieces
The Evraz and Best Decade holdings deal is different because it will be done in pieces. Evraz will buy 10.1% directly from Best Decade, then buy 32.08% of Delong through a put and call option structure. The positions will be exercised within 6 months of purchase. Then the final 8.97% will be sold after the put and call strategy.
The buyout still needs to be approved by regulatory committees but is likely to go through. International deals are usually less prone to be considered a monopoly by regulators.
Evraz published a statement justifying its purchase, which essentially argues that China is the fastest growing steel marketplace in the world, and Evraz will benefit from its production possibilities. Evraz has grown through vertical integration, owning everything from the mining to final production. The company cuts costs by owning all of the factors of production.
The vertical production allows Evraz to avoid the growing costs for Iron ore. Evraz has profited heavily from the need from steel in Asia, but never had a way to sell its steel directly in the Asian markets. The takeover not only gives Evraz more steel production, but also Dexin Steel, which sells its steel in Singapore.
The company is based in Russia, but has plants in Italy, the US, and the Czech Republic. It hopes to gain exposure to the growing Chinese economy and Asian demand for steel. Developing countries are using steel at an alarming rate, and this takeover gives Evraz a new market for its steel. Evraz is internationally popular for being owned by partially by Roman Abramovich, who also owns the Chelsea football team.