TORONTO, June 26 /CNW/ - Deal activity in the global metals industry is
soaring to new highs according to 'Forging Ahead', the third annual report on
global metals mergers and acquisitions by PricewaterhouseCoopers (PwC). The
collective value of deals which took place in 2006 was $77.4 billion, more
than double the $34.9 billion of the previous year. The total number of 224
disclosed deals was slightly down on the 2005 total of 250 but the value of
the top ten deals was $65.5 billion, a huge increase on the $19.4 billion of
the previous year.
The key drivers of consolidation continue to be the need to improve
financial strength, increase negotiating power with customers and suppliers
and boost capacity utilization. This consolidation looks set to continue for
the foreseeable future as for example Arcelor Mittal has already announced
plans to expand facilities in Ukraine, Central and South America and South
The steel sector once again accounted for most of the deal making with
166 transactions collectively worth $70.4 billion, whereas the 165
transactions that took place in 2005 were collectively worth only
$27.4 billion. The mega-merger that created Arcelor Mittal, the world's first
100m tonne a year (Mtpy) was responsible for the massive surge in value. At
$46 billion, it single handedly accounted for 59% of the total value that was
traded in 2006.
However, the top five steel producers still only account for less than
20% of the total steel market, a smaller percentage than their suppliers in
the iron ore industry or customers in the automotive industry enjoy. India's
Tata Steel announcement that it would acquire the Anglo-Dutch Corus Group
indicates that consolidation in the steel sector is far from over. Large
steelmakers will continue to consolidate and expand both up and down stream to
control a bigger share of the steel value chain.
In contrast the aluminum sector saw relatively few mergers and
acquisitions. There were 33 deals with a total disclosed value of $4.6 billion
in 2006, a marginal increase on the $4.2 billion that was exchanged in 2005.
According to Jim Forbes, global metals leader, PwC, "The global metals
sector has now entered a new blockbuster deals era and there is also an
interesting shift in where it is being played out. The established markets of
the West have a far bigger role than before with the sum traded by companies
based in Western Europe and North America increasing three fold while activity
in the Asia-Pacific region has proved sluggish."
There were 61 cross-continental deals collectively worth almost $14.2
billion, compared with 58 such deals collectively worth $12.7 billion in 2005.
But regional transactions represented by far the bigger proportion of the
value that was traded with 163 deals worth a total $63.2 billion - nearly
three times the $22.1 billion that changed hands in 2005.
Western Europe led the way with 60 mergers and acquisitions worth a
record $49.9 billion. The merger of Arcelor and Mittal Steel gave it a huge
head start over North America, even though the total number of transactions in
each region was the same. Deal making was down in the aluminum sector and was
even quieter in other parts of the metals industry.
There was a staggering 85% increase in year on year value in the North
American metals industry. Sixty transactions collectively worth $15.5 billion
compared with 68 transactions worth $8.4 billion in 2005. Nucor's purchase of
more than 96% of shares in the Canadian Harris Steel Group and its aim to
acquire the remaining shares and take the company private, is a predictor of
what is to come in the North American steel sector.
Central and Eastern Europe
Deal making in Central and Eastern Europe was down 33% on last year.
There were 40 transactions worth only $8 billion, compared with $11.9 billion
previously. As in earlier years, Russian steelmakers were much in evidence.
The top manufacturers already control 85% of the country's production capacity
so are keen to expand their reach abroad.
There was also a substantial decrease in the Asia Pacific region. Fifty
two deals with an aggregate value of $3.2 billion was 37% down on the 72 deals
worth $4.4 billion in 2005. This stems partly from the lack of M&A activity in
China where the latest Steel Industry Development Policy aims to promote
domestic consolidation and curb foreign investment in the steel sector.
Central and South America
The Central and South American metals industry saw 12 deals jointly worth
$851m in comparison to 13 deals worth almost $1.4 billion in 2005. Almost all
the transactions involved steel makers.
A new addition to the report for this year is the inclusion of analysis
of the major differences in the views of chief executives in the metals sector
and other industry sectors, based on data drawn from PricewaterhouseCoopers
10th Annual Global CEO Survey. This has been supplemented with a discussion of
some key industry concerns with Daniel DiMicco, chairman of Nucor and Michel
Jacques, chief executive of Alcan Primary Metal Group.
"We have also found that metals industry chief executives are much less
confident about the prospects for revenue growth than those in other sectors.
What is keeping metals executives awake at night is the impact changes in
energy and commodity prices can have on their bottom line," notes Forbes.
Copies of Forging Ahead can be downloaded at www.pwc.com/metals. Analysis
is based on published mergers and acquisitions from Bloomberg, mergermarket
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