Whilst the immediate future of Arrium (formerly OneSteel) remains unclear following the latest announcement of a takeover offer from a consortium involving Korean steelmaking giant POSCO and commodities trader Noble Group, one thing is for certain: from a mergers and acquisitions perspective, one of the largest steel manufacturing companies in Australia is now in play.
On Monday, Arrium announced that it had rejected an unsolicited acquisition proposal from the consortium, which calls itself Steelmakers Australia, to acquire all the shares in the company.
On the face of it, there is almost no hope of this proposal succeeding in its current form. At an indicative price of $0.75, the offer represents a premium of just 8 percent compared with the volume weighted average price of Arrium’s shares during the last three months – an abysmal amount in a change of control context, especially given that sellers would be exiting at the low point of the manufacturing and construction cycles (albeit at the high point of the mining cycle, of which Arrium has considerable exposure). Besides, the offer lists a string of conditions which make it highly uncertain that the transaction would go through anyway.
Indeed, chances are, the Koreans launched this offer simply as an opening shot in what could be an interesting battle. This bid may well be designed as a low-ball test to see which other potential suitors now come out of the woodwork.
So, would a takeover have of Arrium have any significant implications for its customers inconstruction and manufacturing?
Probably not. A casual glance at the company’s share registry reveals it is already mostly foreign owned, so any fears about it falling into foreign hands are a moot point. And whilst POSCO may be trying to take a competitor out of the market, the firm, like many of its other Korean counterparts in other industries (Samsung, Hyundai, LG, Kia, etc.) is well regarded in international circles. A POSCO owned Arrium would serve the Australian market well.
Indeed, probably the biggest fear would be not Korean ownership but an ensuring battle which sees an eventual takeover by a state-owned firm from China.
For now, the future of Arrium remains uncertain. What is certain is that the company is now in play.
By Andrew Heaton
