The world's largest steel maker Arcelor Mittal has announced today the acquisition of ton Mexican integrated steel producer Sicartsa from Grupo Villacero for $1.43 billion. The two companies will also create together a downstream strategic alliance.

Sicartsa is a fully-integrated producer of long steel, with an annual production capacity of approximately 2.7-million tonnes from its facilities in Mexico and Texas in the US. Through its wholly owned mine, linked directly to the plant via a slurry pipeline, Sicartsa has estimated iron ore reserves of 160-million tonnes, providing 30 years of reserves at current production rates.

This is Arcelor Mittal's first acquisition since the combined entity came in to existence with the merger of L N Mittal''s Mittal Steel and its No.2 rival, the Luxembourg-based Arcelor SA and the demonstrates the desire for creating M&A synergies and further consolidate its position in the global steel industry.

Arcelor Mittal expects this acquisition to generate $80 million of industrial synergies in addition to a further $50 million from commercial, procurement and selling, general and administrative synergies.

Sicartsa has already been sharing its production site with Mittal Steel Lázaro Cárdenas. Prior to its privatisation in 1991, which led to the separation of the two entities, the Lázaro Cárdenas steelworks operated as one single integrated site producing both flat and long carbon products.

Mittal Steel Lázaro Cárdenas is Mexico''s largest steel producer and slab exporter. The plant has a capacity of 4 million tons per year and would offer significant synergy potential, once reunited.

The transaction values Sicartsa at $1,439 million. For 2004, Sicartsa''s revenue was $956 million, with an EBITDA of $ 248 million. In addition to the integrated steel making facility at Lázaro Cárdenas, the acquisition also includes Metaver, a mini-mill, Sibasa and Camsa, two rolling mills in Celaya, Guanajuato (Sibasa) and Tultitlán, State of Mexico as well as Border Steel, a mini-mill in Texas.

According to L N Mittal's son, Aditya Mittal who is Arcelor Mittal''s chief financial officer, "With the Mexican market expected to grow by up to 6 per cent per year over the next 10 years this is the ideal time to expand our presence in this country."

Arcelor Mittal will also create a 50-50 distribution and trading joint venture with Sicartsa's parent firm Grupo Villacero, an integrated producer on the same site as Mittal Steel Lazaro Cardenas, to distribute products in Mexico and the Southern US.

Incidentally, Russian business daily Vedomosti has reported that Arcelor Mittal last month approached Viktor Rashnikov, the main owner of Russian steelmaker MMK, with an undisclosed offer to buy a controlling stake in the firm.

MMK, based in the southern Ural mountains, has a current market capitalisation of about $9 billion and last year produced 11.4 million tonnes of crude steel.