Novolipetsk buys US steel company

Russian steelmaker Novolipetsk Steel has signed an agreement to expand its presence in the U.S. by buying steel pipe and tube manufacturer John Maneely Co. from a shareholder group including private equity firm Carlyle Group for $3.53 billion, Novolipetsk said in a statement Wednesday.

The Beechwood, Ohio-headquartered John Maneely Co., or JMC, is the largest independent maker of tubular steel in North America and has estimated 2008 sales of around $3 billion, Novolipetsk said.

The deal is subject to regulatory approval and expected to close in the fourth quarter of 2008.

JMC operates 11 plants in five U.S. states and in Canada. Novolipetsk is buying it on a debt-free, cash basis from Carlyle and the Zekelman family, using existing bank financing commitments, it said.

"We are delighted to have secured an entry into the highly attractive U.S. pipe and tube market," said Novolipetsk chairman, billionaire Vladimir Lisin. Novolipetsk already operates two manufacturing facilities in the United States through its joint venture with Duferco Group.

Marat Gabitov, a metals analyst with UniCredit Aton in Moscow, said the plant's production amounts to 20 percent of Novolipetsk's current steel capacities.

The Russian steelmaker already operates two manufacturing facilities in the United States through its joint venture with Duferco Group.

The jointly owned facilities will be sending hot rolled coils to the JMC plant, cutting production costs significantly.

With commodities prices fluctuating, the pipe and tube market looks extremely attractive compared to steel production.

"The markets of pipes and hollow structural sections are not linked with the consumers' demand and are, therefore, more favorable," said Vladimir Zhukov from Lehman Brothers.

Novolipetsk has so far been less active in buying U.S. assets than its rivals Evraz and Sevestal, Zhukov said.

Russia's biggest steelmaker, Evraz, operates eight steel plants and one vanadium facility in the U.S. Severstal, owned by billionaire Alexei Mordashev, has acquired five steel works in the United States in recent years to accumulate some 10 percent of the country's steelmaking capacity.

Gabitov from UniCreditAton said Novolipetsk has always been more selective, and JMC "looks far more lucrative" than Severstal's recent purchases of underperforming steel plants.

Zhukov described the $3.53 price tag for JMC as "not very expensive." Gabitov said the price may be much lower than its value.

Novolipetsk made the announcement as U.S.-Russia relations have hit a new low over Russia's military action against Georgia. Fears remain that the proposal to buy, which is subject to two regulatory approvals in the United States, may be turned down in the wake of violence in Georgia.

Zhukov said if the purchase is blocked on the first stage of approvals, it will not likely come through.

Other analysts sounded more upbeat and noted that Severstal and Evraz have never encountered any problems in closing their deals in the United States. "I don't think the politics will play any role here," Semen Mironov from Credit Suisse said. "This is not a strategic asset. There will be no influence on it whatsoever." Zhukov agreed that that there are "no grounds to think that the Americans will be opposing the purchase."

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