Arrium, Australia’s second steelmaker is on the way back, so will anyone buy the shares if the company returns to the market in the next two years after the rotten performance in 2014-16?
London-based group GFG Alliance (Liberty House) has signed a binding agreement to buy Arrium, including its Whyalla steelworks and other businesses, for an undisclosed sum with the deal expected to be completed by August.
The steelmaker, second in the country after BlueScope, collapsed in April 2016 with just over $A4 billion in debt.
The purchase was secured after negotiations stalled with preferred bidder, South Korean consortium Newlake (which includes the giant steelmaker, Posco which has a patented steelmaking process which was touted as a way of improving Arrium’s economics).
Arrium Administrator Mark Mentha says GFG Alliance, owned by the Gupta family, submitted a modified offer on Tuesday night which was viewed to be superior.
Liberty House has now evolved into a $6 billion business which employees 2,000 people in five different sectors which includes steel, power, energy financial services and property. It bought the Newport steel works plant in the UK in 2016. The company also bought a hi tech metal engineering business, as well Rio Tinto’s aluminium smelter in Scotland, and UK Midlands car-parts maker CovPress, saving about 750 jobs.
The deal is still subject to approval next week by the Arrium Committee of Creditors and the Foreign Investment Review Board (FIRB). The deal includes iron ore mining operations (which caused much of the company’s earlier woes), Whyalla Port and Rail infrastructure, Whyalla Steelworks – Australia’s only producer of rail and hot rolled structural steel products – OneSteel Secondary Steelworks (which has electric arc operations in Melbourne, Sydney and Newcastle), and other operations.
Liberty House seems (from its UK track record) to buy and keep its business private. But Arrium is likely to be a big bite (the biggest so far) that some analysts reckon the Gupta group will be tempted to bring the steel group to market in 2018 or 2019.
GFG Alliance executive chairman Sanjeev Gupta indicated he was looking at more investment in Australia.
“Looking forward, we will continue to explore opportunities to further grow our presence in Australia in adjacent and complementary industries, including renewable energy, metals and mining,” he said yesterday.
South Australian Premier Jay Weatherill said while the sale is not completely across the line, it is a big win for Whyalla, the state and the country, bringing 15 months of uncertainty to an end.
He GFG Alliance has offered commitments to maintain the Australian workforce and the government expects the new ownership to provide for further growth in the Whyalla operations.
“This is a great day for Whyalla, a great day for South Australia and a great day for the national steelmaking capability of this country," the premier said. "This is about building our nation, about building our national infrastructure. We cannot be beholden to other countries for our steel industry,” he said in a statement.
Federal Treasurer, Scott Morrison said in a statement the deal will bring certainty to the workers in Whyalla and the broader community.
“It would have been a very anxious period of time for those workers, for those families and those communities, and we’re very pleased with that outcome," he said.
Mr Mentha says the successful sale is a credit to all stakeholders who worked hard to give the group the best possible chance of a future.
"This includes the employees, unions, management, local suppliers, the townspeople of Whyalla and three levels of government," he said.”They have stuck solid through a torrid period, including gyrating ore prices, big increases in our coking coal prices and general economic uncertainty.
“Employees took a wage cut, management took a haircut, suppliers agreed to new terms and governments chipped in with funds and loan guarantees,” Mr Mentha said.
The Australian Workers’ Union (the major union at the plant among the estimated 5,500 employees) says GFG Alliance has an outstanding international reputation as a good corporate citizen, with a responsible, long-term vision of success.
“They have invested strongly in heavy industry in Europe and the UK and it is this mindset they will bring to Australia,” AWU national secretary Daniel Walton said. "The Australian steel industry has a bright future, and the GFG Alliance has the track record to realise it."
