Acquisition

6 Dec 2007 10:49

OJSC Novolipetsk Steel06 December 2007 6 December 2007 NOVOLIPETSK STEEL (NLMK) ACQUIRES A CONTROLLING STAKE IN MAXI-GROUP OJSC Novolipetsk Steel (LSE: NLMK), the leading Russian steel producer,announced that it has entered into an agreement to acquire a 50%+1 share stakein OJSC "Maxi-Group" (Maxi-Group) from its founder, Nikolai Maksimov. Theacquisition price is approximately USD 600 million, payable in two installments:the first USD 300 million installment to be paid after the controlling stake hasbeen transferred to NLMK, with the second USD 300 million installment (subjectto price adjustment) to be paid after completion of due diligence. In the firsthalf of 2008 Maxi-Group will carry out a capital increase of approximately USD1.2 billion to be subscribed by NLMK and Mr. Maksimov pro-rata to theirshareholdings. Maxi-Group's results will be consolidated by NLMK from December2007. This acquisition is in line with NLMK's strategy to expand its operations inRussia. NLMK believes the acquisition will give the company a significant shareof the domestic long products market, particularly in rapidly developing regionssuch as Urals, Volga, and Central and Southern Regions. This transaction will also contribute to the future development of high valueadded niche products such as hardened rebar, and seamless pipes. The company also expects that the acquisition of Maxi-Group will lead to NLMK's100% self-sufficiency in steel scrap, which is an important competitiveadvantage given projected higher scrap prices in Russia. NLMK's President, Aleksey Lapshin, commenting on Maxi-Group acquisition, said: "The acquisition of a controlling stake in Maxi-Group advances NLMK's strategyto fully serve the domestic market needs. Demand for long products for theconstruction 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 finishedsteel products in Russia. We are confident that this acquisition will help us tomeet rising demand from the growing domestic economy, develop new markets andgain further competitive advantages for the future growth of NLMK." Maxi-Group's growth model is based on developing a network of mini-millsproducing long products, seamless pipes, metal-ware and, potentially, flat steelproducts in regions with high demand growth and extensive scrap resources. Scrapcollection and processing in local markets and further supply of finishedproducts to these markets underlie Maxi-Group's competitive strength. Maxi-Group's strategy envisages an increase in steelmaking capacity from 2.4 to5.9 million tonnes, long product capacity from 1.3 to 4.4 million tonnes andinstalling seamless pipe capacity of up to 1.5 million tonnes by 2012. NLMKestimates total capex from 2008 to 2012 to be USD 3.7 billion. The capexprogramme will be funded from Maxi-Group's own generated and borrowed funds. After the acquisition of Maxi-Group, NLMK intends to grow its business byrapidly increasing finished product output, maintaining low production costs anddeveloping raw material base. Maxi-Group will compete with establishedintegrated producers through low cost local production and regionalized sales togrowing markets. At present, Maxi-Group's total debt is approximately USD 1.8 billion. FromDecember 2007 the shareholders intend to restructure the group's existing debtby extending stabilization loans. NLMK has already granted a USD 400 millionloan to Maxi-Group secured by shares of main production assets. In early 2008,Mr. Maksimov and NLMK are both expected to provide short-term stabilizationloans of USD 300 million to Maxi-Group. As a result of the additional stockissue during H1 2008, Maxi-Group will be recapitalized, with new equityreplacing shareholders' loans. The remaining indebtedness will be restructuredto reduce interest costs and extend debt maturity. These measures will make thedebt structure more efficient and reduce the overall debt level already in H12008. Maxi-Group comprises several enterprises for the production of ferrous metals,which form a production system, from collecting and processing scrap tomanufacturing rolled products. Maxi-Group is organized into two divisions:Metallurgy and Scrap Collection. The growth strategy of Maxi-Group's Metallurgy division is based on existingproduction sites and launching new mini-mills in Urals, Central and Volgaregions of Russia. The product mix of the existing production sites comprisesbillets (2.4 million tonnes), rebar (1.3 million tonnes) and metal-ware (0.55million tonnes). The Scrap Collection division includes 300 scrap collection yards located in 38regions across Russia with total capacity of 3.0 million tonnes. The estimatedscrap collection volume in 2007 is 2.3 million tonnes. Based on Maxi-Group's management accounts, EBITDA for 9M 2007 is estimatedapproximately USD200 million. The estimated total debt amounted to USD1.8billion. For further information: NLMKAnton Bazulev +7 495 915 1575 Financial DynamicsJon Simmons +44 207 831 3113 This information is provided by RNS The company news service from the London Stock Exchange