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ArcelorMittal Unit Submits Offer in Essar Re-bidding Process

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ArcelorMittal’s MT subsidiary, ArcelorMittal India Private Limited (“AMIPL”) has submitted an offer in the re-bidding process for Essar Steel India Limited in connection with ArcelorMittal’s joint venture (JV) with Nippon Steel & Sumitomo Metal Corporation (“NSSMC”) to jointly acquire and manage Essar Steel.

Notably, AMIPL submitted its first bid for Essar Steel on Feb 12, 2018. Last month, ArcelorMittal and NSSMC announced that they have inked a JV deal under which both companies will co-manage and co-own Essar Steel, provided AMIPL’s bid is successful.

NSSMC is a leading steel company in Japan with the capacity to produce roughly 50 million tons of crude steel per annum. It also has the reputation for high-quality and innovative products. Both ArcelorMittal and NSSMC have worked together in the past and enjoyed a close collaboration for several decades in co-operating downstream high-quality finishing facilities in the United States.

Notably, in 2014, ArcelorMittal and NSSMC entered into partnership to acquire AM/NS Calvert, which is a state-of-the art downstream finishing facility in Alabama. The companies made a major investment program following the acquisition, which focused on improving the facility's finishing lines to enable the production of higher-added value steel products, increase slab staging capacity and efficiency.

These investments helped AM/NS Calvert to rapidly improve its performance by increasing capacity utilization rates by more than 20%. Moreover, the shipments to the automotive sector more than doubled between 2015 and 2017 while the productivity of the hot strip mill increased by more than 1 million tons since the acquisition.

ArcelorMittal stated that the aim of the resolution process is to find a new, capable and strong owner for Essar Steel and maximize returns to the creditors. Given their decades of steel industry expertise along with a wide array of innovative product capabilities and industry leading R&D, ArcelorMittal believes that together with NSSMC, it has the relevant experience and credentials to become the most credible owner for Essar Steel.

Moreover, there is a compelling industrial plan at the center of the offer that transforms and enhances the asset. The big integrated steel-making facility in Hazira requires technological expertise and dedicated knowledge to expand, de-bottleneck and improve its product portfolio. The companies intend to commit considerable capital expenditure to grow the asset, bring in their proprietary processes and patents along with new high-quality products to India for industries including solar and automotive.

Shares of ArcelorMittal have moved up 18.3% in the past six months, outperforming the industry’s 13.1% growth.

Zacks Rank & Other Stocks to Consider

ArcelorMittal currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks worth considering in the basic materials space are LyondellBasell Industries N.V. LYB, CF Industries Holdings, Inc. CF and Daqo New Energy Corp. DQ, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

LyondellBasell has an expected long-term earnings growth rate of 9%. Its shares have moved up 14.3% over a year.

CF Industries has an expected long-term earnings growth rate of 6%. Its shares have gained 25.3% over a year.

Daqo New Energy has an expected long-term earnings growth rate of 7%. Its shares have rallied 162.5% over a year.

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