| Mon 6 Oct 2003, 12:34 | | Iscor closes in on Highveld acquisition |
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Steel maker, Iscor, is close to making formal offers for listed rival Highveld, and for the Duferco steel processing mill.
Although neither company would confirm this yesterday, Iscor is believed to have already started due diligence on Highveld in preparation for making an offer for the Anglo subsidiary.
Iscor CE Louis van Niekerk is on record as having said that he was looking to acquire both Duferco and Highveld.
He had previously estimated that synergies of R300m a year were possible from a consolidation in the local steel sector, although SA Stockbrokers' analyst Ron Klipin believes this figure may be too low.
"Anglo, having acquired the right to substantially increase its investment in Kumba, is likely to want to speed up the sale of Highveld, which is a noncore asset," Klipin said yesterday.
"Substantial cost savings are likely to stem from a consolidation of the local steel industry.
"Iscor has already slashed costs with further savings of more than R1,5bn possible during the next 12 months due to restructuring and an assistance agreement Iscor has with LNM.
"This will ensure Iscor remains competitive at the bottom end of the cost curve, despite the strong rand," Klipin said.
Iscor said that at its year end in June, it was cash flush with access to R5bn.
Another analyst said that he believed that Highveld was worth in the region of R1,2bn, although Iscor might seek some form of state assistance to close the deal.
"I would expect some form of empowerment element to the deal," the analyst said. "This could take the form of Iscor taking over the steel assets of Highveld, while the vanadium operations could go to a black empowerment player."
Iscor is expected to offer about R700m to R800m for Duferco.
Klipin said at the weekend that Iscor could finance the Highveld acquisition in several ways, but there would be a chance that part of the purchase price would be in the form of shares.
"The purchase of Duferco is not a problem, as Iscor has a large cash pile," he said.
"In terms of the Anglo deal, you might see Iscor's shares being diluted, which could cause a problem for LNM, which holds 47% of Iscor.
"In such a case, LNM might seek to acquire further shares, which could be passed on from Anglo, or it might go to the market to boost its shareholding."
Klipin said that his observation of the trading patterns of Iscor shares in SA suggested that "something may well be coming to the fore".
