MT ArcelorMittal

By Alex MacDonald and Razak Musah Baba

LONDON--A consortium made up of steel firms ArcelorMittal (MT) and Marcegaglia have submitted an offer to buy Europe's largest steel plant, Ilva.

The Italian government last year took control of the administration of the loss-making plant in the southern Italian city of Taranto, with a view to saving the plant's roughly 16,000 jobs and improve its pollution track record.

The acquisition of the flat steelmaking plant, if it goes ahead, would mark ArcelorMittal's first major purchase since partnering with Japan's Nippon Steel & Sumitomo Metal Corporation to buy the Calvert, Alabama U.S. flat steel plant for $1.55 billion in 2014.

It comes at a time when European steelmakers are struggling to cope with excess production capacity globally, shedding thousands of jobs and selling loss-making plants in a bid to cope with anemic steel demand growth and an influx of cheap steel into Europe from China, the world's largest steelmaker.

"We believe Ilva represents a compelling investment opportunity for ArcelorMittal, without compromising our balance sheet strength, as it would extend our leadership position and increase our product offering in Italy, Europe's second-largest steel manufacturing and consuming market," said Geert Van Poelvoorde, CEO of ArcelorMittal's Europe Flat Products unit.

The Luxembourg-based steelmaker, the world's largest by output, plans to improve Ilva's product mix, quality and productivity in order to return the plant to profitability. This would involve boosting the plant's output to more than 6 million tons of steel output annually by 2020 from the current 4.8 million tons produced annually from three blast furnaces. The steelmaker said it's committed to operating a minimum of three blast furnaces. "In the longer term we will evaluate production volume increases based on market demand and the performance of the asset," he added. Ilva is capable of producing more than 9 million tons from five blast furnaces, although two are currently idled.

Jefferies analyst Seth Rosenfeld believes ArcelorMittal's offer may be a defensive move. "By acquiring Ilva, ArcelorMittal can ensure that the plants are not run at higher utilization rates," thereby helping keep a lid on supplies while ensuring the sustainability of recent flat steel price rises, he said.

Ilva is the E.U.'s fourth-largest flat steel producer after ArcelorMittal, Germany's ThyssenKrupp AG, and India's Tata Steel Ltd, accounting for 7% E.U. flat steel production. The offer is structured in such a way that ArcelorMittal would likely own an 85% stake in the plant, while Italy's Marcegaglia, a privately owned finished steel manufacturer that is Ilva's largest customer, would own a 15% stake, according to an ArcelorMittal spokesman. No financial details were disclosed.

The Italian government will now spend the next 120 days reviewing the environmental aspects of all offers submitted on Thursday, before providing more clarity on the next steps of a multi-stage process that doesn't have a formal end-date.

Write to Alex MacDonald and Razak Musah Baba

(END) Dow Jones Newswires

June 30, 2016 11:55 ET (15:55 GMT)

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