Russia's Evraz pays $1.5 billion for foothold in China

In its first foray into Asia, the Russian steel company acquires a controlling stake in Delong Holdings.
Russian steel producer Evraz Group will acquire 51% of China's Delong Holdings for S$1.08 billion ($765 million), triggering an offer to the residual minority shareholders. Assuming that all shareholders tender their shares and all outstanding warrants are exercised, EvrazÆs total outlay on the deal will be $1.49 billion.

Evraz has valued 100% of Delong at S$2.12 billion on an equity value basis. The Beijing-headquartered firm operates an integrated steel mill in China that manufactures steel billets and coils, both for domestic consumption and export. Delong also has a subsidiary, Dexin Steel, which is a steel trading and procurement company based in Singapore.

Delong, which has been listed in Singapore since 2005, is being represented in the transaction by Citi. It is owned 77% by an investment firm, Best Decade Holdings. The majority owner of Best Decade, Ding Liguo, is chairman of Delong and a party to the deal. Best Decade will continue to own 26% of Delong after the deal.

Evraz will reach the 51% holding in tranches. It will buy outright from Best Decade shares representing a 10.1% stake in Delong.

Then, using a put and call option structure, Evraz will acquire another 32.08% in Delong. The call and put have to be exercised within six months of the signing date (February 18). This tranche is subject to various conditions including receipt of relevant regulatory approvals.

The final tranche of 8.97% will be sold to Evraz on completion.

Evraz will pay S$3.9459 per share for each of the tranches and will offer minority shareholders of Delong an exit at the same price. The price represents a premium of 31% over the last transacted price on the Singapore Exchange on Monday and a premium of 49.5% over the volume-weighted average price for the past six months.

Evraz and Delong are still finalising details of the shareholders' agreement including lock-ups, exit mechanisms, pre-emptive rights and other minority shareholder protection rights.

Alexander Frolov, EvrazÆs chairman and CEO, said in a written statement that the investment is ôa critical strategic move to expandö and called China ôthe largest and fastest growing (steel market) in the worldö.

Evraz has a vertically integrated steel and mining business which produced 16.3 million tonnes of crude steel in 2007. It has plants in Russia, Italy, the Czech Republic and the US. Evraz is being represented by Merrill Lynch.

Evraz is partly owned by Roman Abramovich, the Russian billionaire who is well-known for his ownership of the Chelsea Football Club, an English Premiership football team. Abramovich made his investment in Evraz in 2006.
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