Despite differences over takeover terms, bidding is likely to continue, analysts say


Korean steel giant POSCO is facing a bumpy road to take over Arrium, Australia’s second-largest steelmaker, on disagreements over its stock value.

A consortium named Steelmakers Australia, which POSCO has joined as a strategic investor, offered 1.2 trillion won ($1.03 billion), or 860 won (78 cents) per share, to Arrium last Friday to buy all Arrium shares, but the Australian steel maker, previously known as OneSteel, rejected the offer on Monday, saying the offer was opportunistic and undervalued the shares.

The consortium said it offered a 38 percent premium per share based on the company’s closing stock price last Friday when the offer was made, while Arrium claimed the offer was only 8 percent better than the company’s three-month average stock price.

Despite the differences over Arrium’s stock valuation, the consortium said in a statement that it will continue dialogue with Arrium’s board to reach an agreement.

“We expect the deal to give an opportunity for Arrium to raise its global competitiveness by using a global commodity distribution network and advanced steel-making technology that two strategic investors in the consortium have,” it said.

Industry watchers also agreed that the consortium’s takeover bid will continue as POSCO and Noble Group, the other strategic investor in the consortium, will take advantage of the deal. The Korean steel giant and Singapore-listed commodities firm are tempted by Arrium, which runs not only a traditional steel-making business but also iron ore mining and export business.

Through the deal, POSCO wants to secure a stable supply channel of iron ore at a time when commodity prices are in a slump, while Noble Group wants to distribute commodities produced by Arrium through its global network.

To ease the financial burden to push for the deal, the consortium attracted another three financial investors from Korea ― the National Pension Service, Korea Investment Corp. and Korea Finance Corp. ― in addition to POSCO and Noble Group.

“All in all, success of the deal will depend on how much it will cost as the consortium will have a limit on being aggressive, considering a recent slump in the steel industry,” a stock analyst said.

Global top steelmakers, including POSCO, the world’s fourth-largest steel maker, have faced slowing demand and tougher competition.

Meanwhile, Arrium shares have continued to rise for two consecutive days since the takeover bid last Friday, peaking at 830 won (75 cents) per share in early trading Tuesday. The company has a $2.28 billion net debt as of Sept. 28.

By Seo Jee-yeon  (jyseo@heraldcorp.com)