Pro Memorie:
ArcelorMittal led consortium reaches agreement regarding Ilva lease and purchase agreement
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16 June 2017 - ArcelorMittal (‘the Company’) and Marcegaglia announce that AM Investco Italy Srl (‘AM Investco’) has concluded the exclusive negotiation phase and reached a binding agreement concerning the lease and obligation to purchase Ilva S.p.A and its subsidiaries with the Italian Government. The ancillary documentation will be completed by 30 June. Intesa Sanpaolo will formally join the consortium before transaction closing.
Strategic highlights
Unique opportunity to acquire a major, integrated steelmaking asset which is Europe’s largest single steel site, in Europe’s second largest steel market
Robust investment plan to materially improve Ilva’s environmental footprint and realise its full potential
Identified synergies of €310 million targeted by 2020 (excludes impact from fixed cost reductions and volume improvements)
Ilva expected to be EBITDA accretive to ArcelorMittal in year one, and free cash flow accretive in year three.
Transaction highlights and key details of AM Investco’s plans for Ilva include:
Purchase price of €1.8 billion, with annual leasing costs of €180 million to be paid in quarterly installments. Ilva’s assets will be initially leased by AM Investco, with rental payments qualifying as down payments against the purchase price. Start of lease expected around year-end 2017, subject to regulatory authorisations. Lease period to be minimum of two years.
Investments of c. €2.4 billion (c. €2.1 billion net of Riva Group contribution) over a seven-year period:
Industrial CAPEX of c. €1.3 billion, supporting an extensive industrial plan; investment programme focussed on blast furnaces, steel shops and finishing lines
Environmental CAPEX of c. €1.1 billion that will ensure Ilva complies with the Integrated Environmental Authorisation (AIA) as set out by the Italian Government and will materially improve Ilva’s environmental performance in areas including air emissions and water treatment; environmental CAPEX includes remediation spend of €288 million, which will be funded with funds seized by the Italian Government from the Riva Group, Ilva’s former owners; further intention to introduce breakthrough low-carbon technologies, including carbon capture and re-use, in the future; and commitment to use DRI when there are the conditions of economic sustainability coherent with the industrial plan.
Finished steel shipments to systematically increase to 9.5 million tonnes, by 2023. Crude steel production limited to 6 million tonnes per annum until AIA provisions complied with; once achieved, commitment to restart blast furnace #5 and increase crude steel production to 8 million tonnes per annum; crude steel production to be supplemented by imported slabs and hot rolled coil, in order to maximise utilisation of Ilva’s finishing facilities, with a commitment to keep at least 10,000 employees for the entire duration of the industrial plan according to the outcome of negotiations with the unions.
€10 million start-up investment in new research and development (R&D) centre in Taranto, which will initially focus on ensuring a successful deployment of the industrial, environment and commercial plans, while also ensuring a smooth transfer of ArcelorMittal R&D intellectual property and knowledge to enhance operationally efficiency, quality and productivity at all Ilva plants.
The assets will be transferred to AM Investco free of long term liabilities and financial debt and includes €1 billion of net working capital.
Strategic rationale
Ilva represents a unique opportunity to add significant value to ArcelorMittal’s European business
Ilva is the largest, and only integrated, steelmaker in Italy. Its main production facility in Taranto is strategically well located, sitting next to one of Europe’s largest deep-water ports, hence enabling easy access to raw materials. Ilva also has significant steel finishing capacity, in Taranto, Novi Ligure and Genova
It provides ArcelorMittal with a primary production presence in Italy, Europe’s second largest steel consuming market, and a country in which the Company currently has no primary steelmaking capacity
Italy imports between 60 and 70% of its flat steel requirements, in part due to a decline in Ilva’s output because of numerous commercial, quality and environmental issues it has faced in the recent past; ArcelorMittal believes that, over time, Ilva’s production levels and competitiveness can be restore
ArcelorMittal can accelerate Ilva’s turnaround through:
Leveraging ArcelorMittal’s high-added value product range, particularly in the automotive market, and upgrading Ilva’s production facilities in order to extend and improve its product range
Leveraging economies of scale benefits in areas including procurement
Opportunity to benchmark against ArcelorMittal’s best performing plants and transfer knowledge and expertise to improve Ilva’s operational performance, quality and efficiency
Leveraging ArcelorMittal’s world-class research and development offering, and rapidly deploy steelmaking process and product solutions at Ilva
Capturing €310 million of identified synergies.
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