ArcelorMittal And Marcegaglia Bid For Acquisition Of Ilva

ArcelorMittal (NYSE:MT) and its partner, Marcegaglia, have announced the submission of an offer to acquire Ilva. The companies look to acquire the loss-making steel producer and address the challenges being faced by it.

ArcelorMittal believes Ilva would prove to be a good investment without compromising on the strength of its balance sheet. It would provide an opportunity to expand leadership and product offering in Italy, the second-largest steel producing and consuming market in Europe. The company intends to boost Ilva’s primary utilization rate and increase crude steel output to more than 6 million tons per annum by 2020 from the current production of 4.8 million tons.

Ilva is exposed to a significant number of challenges which can be tackled with the help of strong industrial leaders like ArcelorMittal. The company will receive technical expertise, management know-how and financial support from ArcelorMittal as well as Marcegaglia. The companies intend to improve quality, product mix and productivity to generate profits from Ilva in the medium term, and eventually increase production volume.

Ilva particularly faces huge environmental concerns. Last year, the Italian government took over the administration of the company’s plant to safeguard jobs and reduce environmental damage. The government is now seeking investors to bid for the company. Along with the bid, ArcelorMittal has submitted a detailed plan of its intended investments post the acquisition to bring Ilva’s performance in line with European standards.

ArcelorMittal and Marcegaglia have witnessed a long and fruitful relationship. While the world steel leader, ArcelorMittal, is able to provide strength and management competencies, Marcegaglia not only has a thorough understanding and knowledge of the Italian and European markets, but also a significant presence in it. The companies are confident of their ability to turn the future of Ilva around to make it a sustainable and profitable company.

The companies have several stages to pass before the acquisition is completed. After the first step of bidding, the environmental section of the offers set forth will be discussed for the next 120 days. Following the discussions, the government will lay out further steps and stages toward the acquisition process.

Shares of ArcelorMittal rose 2.6% in the trading session on Thursday, closing the day at $4.66.

ArcelorMittal recorded a wider year-over-year adjusted loss of 10 cents per share in first-quarter 2016. However, the loss was narrower than the Zacks Consensus Estimate. Revenues plunged 21.7% year over year to $13,399 million in the quarter and missed the Zacks Consensus Estimate.

ArcelorMittal expects the impact of an improving steel spread environment to reflect in its results in the second half of 2016. The company has also set certain goals for 2020. It is working toward streamlining and building on the core strengths of the U.S. facilities, while progressing with its Transformation plan in Europe.

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

Some other well-ranked companies in the steel space include Ryerson Holding Corporation (NYSE:RYI) , sporting a Zacks Rank #1 (Strong Buy), and AK Steel Holding Corporation (NYSE:AKS) and Gerdau S.A. (NYSE:GGB) , both carrying a Zacks Rank #2.