Deal-hungry Mittal in Mexican buy

The world's largest steel maker, Arcelor Mittal, is to acquire the Mexican steel producer Sicartsa for $1.4bn (£710m) to make it the country's biggest producer of the metal.

Arcelor Mittal is also forming a joint venture with Sicartsa's parent firm Grupo Villacero to distribute products in Mexico and southern United States.

The transaction marks the first since the Luxembourg-based company was formed in June through the $38.3bn takeover of Arcelor by Mittal Steel. It also comes amid unconfirmed reports the company has approached Russian steel maker MMK to buy a controlling stake for an undisclosed sum.

Lakshmi Mittal, Arcelor Mittal's billionaire boss, signalled last month that there would be further consolidation in the steel industry.

The company also acquires Border Steel, a mini-mill in Texas, as part of the deal. Sicartsa is a fully integrated producer of long steel with an annual production capacity of about 2.7 million tonnes. It stands on the same site as Mittal Steel Lazaro Cardenas, which has a plant capacity of 4 million tonnes a year.

Analysts at Credit Suisse, with an outperform rating on the stock, said this looks like "a sensible deal, all part of the longer-term positive growth story for this company".

"The fact that Sicartsa shares the same site at Lazaro Cardenas with Mittal's slab facility should mean good synergy potential," Credit Suisse said.

Arcelor Mittal, which produces about 10 per cent of the world's steel output, wants to strengthen its position as the biggest steel maker in the US and tap into growing demand for the metal in Latin America.

Chief financial officer Aditya Mittal said the acquisition creates Mexico's largest and one of its lowest cost steel producers. The combined 6.7 million tonne operation should generate industrial synergies of $80m and a further $50m in synergies from commercial, sales and administration, he added.

Sicartsa's revenue was $956m in 2004, with earnings before interest, tax, depreciation and amortisation of $248m.

The deal is expected to be completed in the first quarter of 2007 subject to regulatory approval.

Meanwhile, the Russian newspaper Vedomosti reported that the steel giant had offered to buy a controlling stake in MMK, based in the southern Ural mountains, which has a market capitalisation of $9bn.