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***SPOTLIGHT: Nippon Nuptials — two steel giants plan to merge
February 07, 2011 - 00:00 GMT
Location:
London
On October 12 next year Nippon Steel and Sumitomo Metal Industries plan to integrate their businesses, formalizing a long relationship of cooperation through shared assets, technical exchange and trade. The two companies haven’t released details on the merger ratio yet. But Nippon and Sumitomo management are working towards initiating the deal before the end of April next year.This will give shareholders time to consider the proposal and vote. The combination will be one of the largest steelmakers in the world.
On October 12 next year Nippon Steel and Sumitomo Metal Industries plan to integrate their businesses, formalizing a long relationship of cooperation through shared assets, technical exchange and trade.
The two companies haven’t released details on the merger ratio yet. But Nippon and Sumitomo management are working towards initiating the deal before the end of April next year.This will give shareholders time to consider the proposal and vote.
The combination will be one of the largest steelmakers in the world.
In 2009 the pair produced a combined 38.42 million tonnes, ranking them number four on MB’s Top Steelmakers list, hard on the heels of Chinese behemoths Baosteel and Hebei Steel.
The year before they ranked even higher. As a combined entity Nippon and Sumitomo would have ranked second, pumping out 50.76 million tonnes of crude steel, only overshadowed by ArcelorMittal.
That is an impressive figure. Particularly when you consider that Japan’s top four blast furnace-based steelmakers produced 70.64 million tonnes in 2009.
Sumitomo looks like it has the most to gain.
The deal will strengthen the company’s carbon steel division, which has tended to focus on tube and pipe and struggled to extract value from other areas like plate, sheet and semi-finished products. Slab alone accounts for 20% of its production.
The merger will bring economies of scale to these businesses and help them to grow.
Some of the groundwork has been done. Nippon already supplies hot rolled coil to Sumitomo, while the latter satisfies some of Nippon’s requirements for slab.
In stainless steel, Nippon Steel has a lot to gain. Sumitomo is a far more powerful world player in stainless steel than Nippon, with clear advantages in key markets like India.
“As a combined producer, it would be the largest duplex stainless steel seamless pipe producer in the world,” said Steel and Metals Market Research md Markus Moll. This will help the two producers to better serve the lucrative oil and gas sectors.
There is groundwork here as well. Nippon and Sumitomo’s domestic stainless steel joint venture Nippon Steel & Sumikin Stainless Steel started up in October 2003, producing plate, sheet, strip, bars and wire rods.
The pair also signed a joint-venture agreement to set up a 26,000 tpy arc-welded stainless steel pipe facility in July 2009, due to come online shortly.
It’s not often two companies give more than a year’s notice of their intention to merge. If successful, the deal will have serious implications.
Along with JFE Steel and Kobe Steel, Nippon and Sumitomo accounted for 86% of the 81.98 million tonnes of crude steel Japan produced as a whole in 2009. That’s a tight-knit community, and one that Japanese regulators keep a close eye on.
Japan’s Fair Trade Commission (FTC) has tended to oppose similar deals in the past. So Nippon and Sumitomo management have their work cut out for them in selling the benefits.
There are serious implications for Japan’s other steelmakers as well.
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