ArcelorMittal, Votorantim Merge Brazil Long Steel Businesses

Steel giant ArcelorMittal (NYSE:MT) and Votorantim S.A. have agreed to combine their long steel businesses in Brazil. Pursuant to the definitive agreement, Votorantim’s long steel businesses in Brazil – Votorantim Siderurgia – will become a subsidiary of ArcelorMittal Brasil and Votorantim will hold a minority interest in ArcelorMittal Brasil.

The transaction does not include Votorantim’s long steel operations in Argentina and Colombia. Financial terms of the deal were not divulged.

The companies noted that the merger will result in a long product steel producer with annual crude steel capacity of 5.6 million tons and annual rolling capacity of 5.4 million tons. Production plants include ArcelorMittal Brasil’s sites at Monlevade, Cariacica, Juiz de Fora, Piracicaba and Itauna, and Votorantim Siderurgia’s sites at Barra Mansa and Resende.

The combination is expected to deliver cost, logistical and operational synergies. The production plants of the combined entity are geographically complementary, allowing closer proximity and improved levels of services to its customer base.

The deal is subject to regulatory clearances in Brazil including the approval of the Brazilian antitrust authority. ArcelorMittal Brasil and Votorantim Siderurgia will remain fully separate and independent companies until the deal closure.

ArcelorMittal has outperformed the Zacks categorized Steel-Producers industry over a year, supported by its efforts to reduce debt, lower costs, expand capacity and improve efficiency. The company's shares gained 133.7% over this period while the industry saw a gain of 82.9%.

ArcelorMittal swung to a profit in fourth-quarter 2016, aided by its cost-cutting actions. Adjusted earnings for the quarter topped the Zacks Consensus Estimate. Revenues rose marginally year over year in the quarter, aided by higher steel shipments and steel prices. Sales, however, trailed expectations.

ArcelorMittal, in its fourth-quarter call, said that it entered 2017 with good momentum in the business and the market. The company will remain focused on making progress in three areas of cost optimization, product mix and volume growth.

ArcelorMittal expects global apparent steel consumption to rise 0.5%-1.5% year over year in 2017. In the U.S., it sees apparent steel consumption growth of 3% to 4% in 2017. The company also expects a modest growth (of 0.5% to 1.5%) in apparent steel consumption in Europe. Moreover, apparent steel consumption is forecast to rise 3% to 4% in Brazil while demand is expected to stabilize in China in 2017.

ArcelorMittal currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other well-placed companies in the steel space include United States Steel Corporation (NYSE:X) , Ternium S.A. (NYSE:X) and Angang Steel Company Limited ANGGY, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

U.S. Steel has an expected long-term growth of 8%.

Ternium has an expected long-term growth of 18.4%.

Angang Steel has an expected earnings growth rate of 45.3% for the current year.

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