Mittal seeks 49 pct of China's Baotou Steel
(Reuters)
Updated: 2005-12-28 21:49

Top global steel maker Mittal is in talks to buy 49 percent of China's Baotou Iron & Steel (Group) Co. Ltd., two sources close to the deal said on Wednesday, marking the latest in a flurry of potential deals by multinationals trying to tap the world's biggest steel market.

Mittal Chairman and CEO Lakshmi Mittal (R) and CFO Aditya Mittal in an undated photo. Top global steel maker Mittal is in talks to buy 49 percent of China's Baotou Iron and Steel (Group) Co. Ltd., two sources close to the deal said on Wednesday, marking the latest in a flurry of potential deals by multinationals trying to tap the world's biggest steel market. [Reuters]

Analysts say the timing of the proposed deal is particularly good for Mittal Steel Co., as overcapacity racked up through years of frenzied investment has hammered domestic steel prices and could have made acquisition targets cheaper.

And it could apply pressure on smaller rival Arcelor S.A., which is locked in negotiations to try and buy a chunk of Laiwu Steel Corp. Ltd., a mid-sized mill in eastern China.

"The move could also help speed up the Arcelor and Laiwu negotiations, as foreign giants are eager to get a head start," said Liang Mingchao, an analyst with Tianxiang Investment Consulting.

Luxembourg-based Arcelor, the world's number-two steel firm, is said to be close to a deal to buy into Laiwu, which is based in Shandong province.

If it goes through, Mittal's latest deal would be its second major investment in a Chinese mill. Baotou, a mid-sized mill based in the eponymous Inner Mongolian industrial city, has annual capacity for 7 million tonnes of steel and is targeting 8.5 million tonnes next year and 10 million tonnes by 2007.

"Mittal wants 49 percent of Baotou, but we haven't reached any agreement on that," an executive with Baotou told Reuters on condition of anonymity.

Mittal this year took 36.7 percent of Hunan Valin Steel Tube & Wire Co. Ltd., the listed arm of China's eighth-largest mill, for about $310 million -- a price that equated to the firm's book value.

"It's too early to put a price tag on the Baotou deal, as talks are still in the initial stages," a source close to Mittal told Reuters.

Unlisted, state-owned Baotou had assets of 35.1 billion yuan ($4.35 billion) as of the end of 2004 and recorded sales of 21.5 billion yuan in 2004, according to its Web site (www.btsteel.com).