MOSCOW, May 27 (RIA Novosti) -- A synergic effect from the merger of Severstal (RTS: CHMF), Russia's largest steelmaker, and world No. 2 Arcelor will be substantially more than 590 mln euros ($750 mln), Severstal's CEO said Saturday.
The merger, announced Friday, will create the world's largest steel producer.
"A synergic effect from the deal is expected at 590 mln euros," Alexei Mordashov said. "But we see great potential for cutting production costs. The figure will be substantially higher."
The companies said in a joint press release that the new steel giant "will be the Number 1 steel company in the world with 46 billion euros [$60 bln] in sales ... and 70 million tonnes of production" based on last year's results.
"The merger with Severstal represents a breakthrough transaction for Arcelor that positions the combined company in the forefront of the international steel industry," Arcelor CEO Guy Dolle said. "The transaction is consistent with Arcelor's strategy of value before volume, and was negotiated in the best interest of both groups. The merger is consistent with Arcelor's growth strategy in the BRIC markets. We are creating a truly extraordinary growth platform for investors and a much better choice for our shareholders."
Severstal shares surged on news of the merger, with its ordinary shares jumping 9.5% on the RTS, Russia's premier bourse.
Under the deal, Severstal's principal shareholder, Alexei Mordashov, will swap his stake in Severstal, Severstal-resurs, and Italy's Lucchini, plus 1.25 bln euros (about $1.62 bln) in cash, for an additional issue of 295 million Arcelor shares, at a rate of 44 euros per share ($56).
As a result, Mordashov will have a 32% stake in the merger, with the other 68% being held by Arcelor's current shareholders.
The deal has yet to be approved by the Russian antimonopoly agency, and is slated to be completed in July.
At the same time, Mordashov said that Severstal would remain a Russian company and legal entity registered in Russia and paying its taxes in Russia.
"We understand our responsibility to the parties concerned and to the Russian people," Mordashov said.
Arcelor's turnover in 2005 was 32.6 bln euros (about $41.7 bln).
Severstal produced 17.1 mln tons of steel in 2005.
Experts were upbeat over the companies' intention to merge their assets.
"This will enable Russian steel to enter new markets, skirting the supply quotas that exist on the European and U.S. markets," Broker Credit Services' analyst Maxim Shein said.
Analysts with Prospekt Investors said the deal was likely to be successful, although it has yet to be approved by the companies' shareholders.
