On 21st of December last year,
JSW Steel, India's third larg-
est steel maker, shook industry rivals when it announced its
acquisition of the Mittals (Pramod and Vinod, the brothers of steel baron
Lakshmi Mittal)-owned Ispat Industries. In what appears a masterful stroke, the
company catapults itself to the number one spot in Indian steel's big league,
jumping ahead of biggies, the state-owned Steel Authority of India (SAIL),
and Tata Steel. What also makes this deal special is the fact it marks the first
yet audacious move towards consolidation in the domestic steel industry.
JSW Steel is the flagship company of the JSW Group, whose interest
spans across sectors viz., power, infrastructure, and energy.
As part of the deal, JSW Steel will buy a stake of 45% by subscribing
to preferential shares of Ispat Industries worth Rs 2,157 cr at a price of Rs
19.85 per share, a discount of about 7% of the closing market price of the
company's shares on the day the deal was announced. The deal will be funded
through JSW Steel's internal accruals. The company will be renamed as JSW
Ispat Steel Ltd. Investors, however, shunned stocks of Ispat after the two
companies announced the deal, understandably as the deal was done at a discount to
the market price. On the other hand, the JSW Steel scrip gained nearly
2%.
The deal comes as a major savior to the beleaguered steel firm which has
been making losses for quite some time. In fact, the company has incurred losses
in four out of last five years, beginning financial year 2005-06; for the
recently concluded fiscal year June 2010 (for a 15-month period), the company
reported a loss of Rs 322 cr. Heaving a sigh of relief, Vinod Mittal,
Managing Director, Ispat Industries, quipped,
"We were scouting for a partner for support for the last two to three months.
We've struggled to maintain the financials of the company for last few quarters."
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