Metals deals forging ahead to unprecedented levels

15 April, 2008 — Deal making in the global metals sector soared to unprecedented levels during 2007 and is up 67% on the previous year, despite the impact of the credit crunch. ‘Forging Ahead’, the latest study of mergers and acquisitions (M&A) in the metals sector by PricewaterhouseCoopers, also found there have been dynamic shifts of focus: from steel to aluminium and away from Western Europe to the new M&A hotspot of North America.

The rate at which the metals industry, and in particular the aluminium sector, is consolidating increased dramatically during 2007. There were 411 disclosed deals, marginally more than the 385 that took place in 2006. But the aggregate value of those deals was US$144.7bn, a massive increase on the US$86.4bn traded the previous year. The aluminium sector accounted for much of this activity, with 56 transactions collectively worth US$77.3bn, nearly four times the US$21.3bn it generated in total between 2003 and 2006.

The aluminium sector has traditionally experienced much less M&A activity than the steel sector but mining giant Rio Tinto set a new sector record with the US$38.1bn acquisition of Alcan. This, together with RUSAL’s US$30bn three way merger with SUAL and Glencore International has helped push the total of aluminium deals to US$77.3bn, more than 19 times the amount traded in 2006.

Meanwhile deal making in the steel sector was largely incremental, with the notable exception of Tata Steel’s acquisition of the Anglo-Dutch Corus.

North America

North America has become the world’s metals M&A hotspot, with 115 deals worth US$77bn, nearly as much as the value traded in the entire metals industry the previous year. Rio Tinto’s acquisition of Alcan accounted for nearly half this sum but a number of steelmakers based in emerging economies also purchased North American producers as a means both of moving up the value chain and of getting access to the US market, where steel consumption is forecast to outstrip production for the next few years.

‘Forging Ahead’ anticipates that steelmakers from the emerging and industrialised markets alike will continue to show considerable interest in North America for some time to come. The longer term outlook is attractive and US consumption is forecast to grow by 3% a year for the next two years.

Central and Eastern Europe

M&A activity soared in this region in 2007 with just 23 deals worth a total US$30.8bn, more than nine times the US$3.3bn that was traded the previous year. A single transaction, the creation of United Company RUSAL, accounted for 97% of this value.

However, the Central and Eastern European steelmaking sector is already consolidated; the top ten manufacturers control 85% of crude production and many of the larger steelmakers are also self-sufficient in iron ore and coal. Many of the region’s steelmakers have therefore been looking elsewhere.

John Campbell, Partner, Metals Leader, PricewaterhouseCoopers Russia:

“Russian metals companies continue to be active in the area of M&A, with the second largest deal in 2007 being RUSAL's merger with SUAL and Glencore. Given the relatively small number of global players in the aluminum industry, the opportunities for large scale M&A transactions the aluminum sector going forward may be slim. Diversification into other metals may be an important avenue for growth. RUSAL continues to be active in this regard, as the saga of its ongoing negotiations with Norilsk Nickel and its principal shareholders unfolds. These companies continue to grow in order to be able to compete with global goliaths such as BHP Billiton and Vale.

Given the number of large players in the steel industry in Russia, companies have begun to look for investments abroad. Evraz, for example, is making acquisitions in China, South Africa and the Ukraine, and has completed several acquisitions in North America, providing the company with access to the US market, where long term consumption growth is likely to outstrip production capacity. The decline in the value of the US dollar will also make investments in America more attractive for Russian strategic buyers. Such acquisitions will help Russian companies to continue integrating vertically and horizontally, enjoying a larger share of the value chain.”

Western Europe

There were 104 deals collectively worth US$20bn in Western Europe compared with 69 deals worth US$49.3bn the previous year. The steel sector remained the source of most of this activity. The aluminium sector accounted for another 18 deals collectively worth US$129m, marginally more than the US$76m traded in 2006. However deal making in other metals sectors was significantly higher than during 2006, with 27 deals worth a total US$3.2bn.

Central and South America

Twenty one deals collectively worth US$9.6bn took place in Central and South America in 2007. Apart from Anglo American’s acquisition of a minority stake in the Sistema Minas-Rio iron ore mine, the steel sector accounted for nearly 75% of this sum.

Asia Pacific

There were 148 deals with an aggregate value of US$7.2bn in the region, a substantial drop on the 154 deals collectively worth US$15.1bn of 2006. The 52% decline in the value of transactions is largely attributable to the lull in the Chinese steelmaking sector, which remains very fragmented, despite the central government’s Steel Industry Development Policy to promote the consolidation of the sector and development of several major domestic steel producers.

Notes to Editor

1. For additional information, please contact Vera Totskaya, PR Manager.
2. Methodology: The report provides an analysis of domestic and cross-border deal activity in the global metals industry (with the exception of mining transactions unrelated to the production of steel and aluminium). It is based on data from Thomson Financial (supplemented by company reports, where necessary), and covers all mergers and acquisitions completed in 2006 and 2007. Any minor discrepancies between the figures published here and those recorded in last year’s edition of Forging Ahead are attributable to the difference in the data sources used or to variations between the preliminary and final value of certain deals, where due diligence or other circumstances have provided grounds for changing the price. The analysis encompasses announced deals for which values have been disclosed.
3. PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services for public and private clients. We provide services to build public trust and enhance value for our clients and their stakeholders. More than 146,000 people in 150 countries work collaboratively using Connected Thinking to develop fresh perspectives and practical advice.