Novolipetsk Steel, a large Russian steel producer, has entered into an agreement to acquire a 51 percent share of Maxi-Group for around$600 million, payable in two installments: half when the controlling stake has been transferred to NLMK, and the second half after completion of due diligence.
This acquisition is in line with NLMK’s strategy to expand its operations in Russia. The company feels the acquisition will give it a significant share of the domestic long products market, particularly in rapidly developing regions such as Urals, Volga, and Central and Southern Regions.
This transaction will also contribute to the future development of high value added niche products such as hardened rebar, and seamless pipes.
In a release announcing the deal NLMK noted that the acquisition of Maxi-Group will allow it to become 100 percent self-sufficient in steel scrap.
Maxi-Group has developed a network of mini-mills producing long products, seamless pipes, metal-ware and, potentially, flat steel products in regions with high demand growth and extensive scrap resources. Scrap collection and processing in local markets and further supply of finished products to these markets underlie Maxi-Group’s competitive strength.
The company expects to increase its steelmaking capacity from 2.4 to 5.9 million metric tons, long product capacity from 1.3 to 4.4 million metric tons and installing seamless pipe capacity of up to 1.5 million metric tons by 2012.
After the acquisition of Maxi-Group, NLMK intends to grow its business by rapidly increasing finished product output, maintaining low production costs and developing raw material base. Maxi-Group will compete with established integrated producers through low cost local production and regionalized sales to growing markets.
The company is split up into two divisions: Metallurgy and Scrap Collection.
The Scrap Collection division includes 300 scrap collection yards located in 38 regions across Russia with total capacity of 3 million metric tons. The estimated scrap collection volume in 2007 is 2.3 million metric tons.
NLMK’s President, Aleksey Lapshin, commenting on Maxi-Group acquisition, said:
"The acquisition of a controlling stake in Maxi-Group advances NLMK’s strategy to fully serve the domestic market needs. Demand for long products for the construction sector is growing rapidly making these markets highly promising. Maxi-Group’s acquisition provides a new catalyst for NLMK’s dynamic development, enabling the company to strengthen its leadership in the supply of finished steel products in Russia. We are confident that this acquisition will help us to meet rising demand from the growing domestic economy, develop new markets and gain further competitive advantages for the future growth of NLMK."