Dec. 22, 2006 — Arcelor Mittal has announced the acquisition of Mexican integrated steel producer Sicartsa from Grupo Villacero for an enterprise value of $1,439 million. The two companies will also create together a downstream strategic alliance.

Arcelor Mittal says this acquisition—the company's first since its creation earlier this year—demonstrates the M&A synergies the merger created as well as the company's desire to drive further consolidation in the steel industry. Arcelor Mittal expects this acquisition to generate $80 million of industrial synergies in addition to a further $50 million from commercial, procurement and selling, general & administrative synergies.

Sicartsa has an annual production capacity of approximately 2.7 million tonnes from its facilities in Mexico and Texas, as well as a wholly owned mine that is linked directly to the plant via a slurry pipeline. The mine represents estimated iron ore reserves of 160 million tonnes, providing 30 years of reserves at current production rates. Sicartsa's revenue was $956 million in 2004, with an EBITDA of $ 248 million. Performance suffered in 2005, however, largely due to a 46-day strike; the strike has also affected Sicartsa’s operations for another 4 months in 2006.

Sicartsa shares its production site with Mittal Steel Lázaro Cárdenas, offering significant synergy potential, once the two plants are reunited. Prior to the privatization in 1991 that led to its separation into two entities, the Lázaro Cárdenas steelworks operated as one single integrated site producing both flat and long carbon products. Mittal Steel Lázaro Cárdenas, Mexico's largest steel producer and slab exporter, has a capacity of 4 million tons per year.

Arcelor Mittal has also entered into a 50/50 commercial joint-venture with Grupo Villacero for the distribution and trading of Arcelor Mittal long products in Mexico and in the southwestern United States, capitalizing on Villacero's commercial network.

“This acquisition creates a strong and well balanced long carbon player in the Americas,” said Aditya Mittal, CFO Arcelor Mittal. “With the Mexican market expected to grow by up to 6% per year over the next ten years this is the ideal time to expand our presence in this country. Through the implementation of rapid technological and best practice transfer, we see significant potential for improving the profitability of Sicartsa. Combining these two facilities creates Mexico's largest and one of its lowest cost steel producers and further accelerates our growth plans in this exciting region.”

In addition to the integrated steelmaking facility at Lázaro Cárdenas, the acquisition also includes Metaver, a minimill; Sibasa and Camsa, two rolling mills in Celaya; Guanajuato (Sibasa) and Tultitlán, in the State of Mexico; as well as Border Steel, a Texas minimill. In 2005, Border Steel had net sales of USD 110.8 million and an EBITDA of USD 12.5 million.

The transaction is expected to close during the first quarter of 2007, subject to regulatory and competition approvals.

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