Russia's Severstal buys US steel mill

Russia's biggest steel maker Severstal is to become the fourth-largest steel producer in the US with the purchase of Sparrows Point mill in Maryland from ArcelorMittal for $810m (£408m).

Anti-trust authorities instructed ArcelorMittal to sell the mill, which is in Baltimore, last year, after the merger of Mittal Steel, which had headquarters in London and Amsterdam, and Luxembourg's Arcelor to create the world's largest steel maker.

The acquisition "reflects a significant strategic opportunity to add complementary assets and scale to Severstal's existing US business", the company said. The deal is likely to be finalised in the second quarter of 2008.

Alexei Mordashov, the chief executive of Severstal, said: "With Sparrows Point, Severstal brings into its US portfolio an asset with significant existing value as well as unlocked growth potential. This presents us with an opportunity to enhance productivity at Sparrows Point through our high standards of operational performance and will benefit our existing US businesses."

Sparrows Point is the only integrated producer of flat-rolled steel on the US east coast and a major supplier of tin mill products. Severstal, whose total global steel production now stands at 35.6 million tonnes, has already earmarked $1bn for investment in the US to expand production at steel plants in Michigan and Mississippi from 2.5 million tonnes to 6 million tonnes a year by 2011. Much of the extra steel is expected to be used in the car manufacturing industry.

ArcelorMittal agreed last February to sell Sparrows Point in order to resolve US Justice Dep-artment antitrust concerns about production of tin-plated steel. The department said yesterday that its antitrust division "expects to conduct a prompt review of the agreement and the proposed acquirer".

This week, Severstal reported that net profit for last year rose 33 per cent as the company benefited from a strong European market. But it added that its North America results for the year were hit by weaker market conditions in the region and a planned outage related to the rebuilding of a blast furnace. Analysts said the Sparrows Point deal would allow the company to plug an expected drop in its US steel production this year after the blast furnace was closed.

Merrill Lynch acted as financial advisor to Severstal on the deal.