Severstal Dearborn sold to AK Steel

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July 21, 2014 at 7:06 pm
AK Steel cites 'strategic benefits' in buying Severstal's Dearborn operation

David Shepardson
The Detroit News

From The Detroit News: http://www.detroitnews.com/article/2014 ... z389rj1HYT

Russian steelmaker OAO Severstal said Monday it is selling its Dearborn unit formerly known as Rouge Steel to an Ohio company for $700 million as it exits North America.

Severstal Dearborn LLC subsidiaries and Severstal Columbus LLC, collectively known as Severstal North America, will be sold to AK Steel Corp. and Steel Dynamics Inc., respectively, in a $2.3 billion deal. AK Steel, a Fortune 500 company, is based in West Chester, Ohio, and employs 6,100 people in Ohio, Pennsylvania, Kentucky and Indiana.

“The sale of Columbus and Dearborn unlocks substantial value to Severstal’s shareholders,” said Alexey Mordashov, CEO of OAO Severstal.

In 2004, Severstal acquired most of Rouge Steel, a former unit of Ford Motor Co., after that steelmaker filed for bankruptcy in 2003.

AK Steel is acquiring Severstal’s coke-making facility and interests in three joint ventures that process flat-rolled steel.

AK Steel said it passed on several other deals and noted Severstal spent at least $1.2 billion renovating and modernizing the facility. It said it would cost $5 billion to build a facility like the one in Dearborn from the ground up. The company said it expects to win Justice Department approval, even though the U.S. will go from four major suppliers of automotive steel to three.

Moody’s Investors Service praised the proposed deal, saying “the strategic benefits, as they are realized over the near to medium term, should enable AK Steel to improve its operating performance.”

Dearborn’s blast furnace, which was rebuilt in 2007, is among the most efficient and productive blast furnaces in the world for its size, according to AK Steel.

The plant began operating a new pickle line tandem cold mill and a new hot dip galvanizing line in 2011. Similar to AK Steel’s existing carbon steel operations, the Dearborn plant produces hot- and cold-rolled sheet and hot-dip galvanized products, as well as other flat-rolled steel products. The plant employs 1,400 and is capable of producing about 2.5 million tons of finished steel per year.

Upon completion of the acquisition, AK Steel’s annual shipments are expected to exceed 7.5 million tons.

AK Steel said it intends to utilize all of Dearborn’s production units, and has no plans to cease operations at any of its current steel-making or steel-finishing facilities.

The deal means AK Steel will be closer to many automotive customers, said James Wainscott, the company’s chairman, president and CEO: “It furthers our automotive strategy and strengthens our carbon steel-making footprint.”

Wainscott said the deal will “create significant long-term value for AK Steel, our employees, customers and shareholders.” The company anticipates annual cost-based savings of about $50 million, with about $25 million realized in the first full year.

Severstal — which has been losing money — announced a strategic review of assets last year. The steelmaker lost $100 million in the first three months of the year after losing $74 million in the last quarter of 2013. Last year, North America accounted for 30 percent of Severstal’s revenue.

The company put the North American plants up for sale in May. Severstal is the fourth-largest alloy steelmaker in the United States.

In 2011, the Energy Department awarded Severstal North America a $730 million federal retooling loan that was to be used to produce high-strength, lightweight steel for automakers — creating 260 permanent factory jobs and supporting 2,500 more in the construction industry. Under pressure from steel-state senators, the Energy Department in 2012 scrapped the loan.

As of 2011, 50 percent of Severstal’s automotive steel went to Ford, General Motors Co. and Chrysler Group LLC; 30 percent is used by suppliers making parts for those automakers.

Wainscott downplayed the threat of aluminum, which is being used increasingly in autos to save weight. Ford Motor Co. plans to build an aluminum-body F-150.

“Aluminum has gotten a lot of great press,” Wainscott said. “If things like cost and if things like safety and the environment matter, I think our arguments are really profound to continue to keep steel.” He noted the F-150 will have more high-strength steel in the frame.

The UAW is the largest union at AK Steel, with 1,800 workers there. It also represents 1,100 at Severstal. AK Steel will assume the current Severstal contract with UAW workers that expires in March 2017, the company said.

AK Steel stock closed down 4.2 percent to $8.46, off 37 cents.



From The Detroit News: http://www.detroitnews.com/article/2014 ... z389rbLB6r