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The world’s largest steel maker ArcelorMittal owned by London-based NRI billionaire LN Mittal is finally entering India. The company which has been looking to set up a couple of fresh production facilities in Eastern India (both projects are much behind schedule) with multibillion dollar investments is picking a significant minority stake in Mumbai-based speciality steel products maker Uttam Galva Steels.

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Late Friday, Uttam Galva which has a capacity of 0.8 million tonnes, announced a “co-promotion agreement” that will entitle Luxembourg-headquartered ArcelorMittal to become a co-promoter in the Indian steel maker.

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The promoter holding is at 40% in Uttam Galva which means ArcelorMittal may own upto 35% of the equity post the deal. In the lower end it could still end up with 20% holding in the company.

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Exact contours of the deal has not been disclosed but according to this Mint report, the process of joint partnership will be done in three stages with ArcelorMittal purchasing 5% stake for Rs 69.6 crore at Rs120 a share in the first stage.

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Thereafter, ArcelorMittal will make an open offer to purchase a 30% stake at the same price valuing the company at Rs1,384.3 crore. In case the open offer does not get good investor response, the Miglanis who are the promoters of  Uttam Galva, will sell part of their stake to make up the difference. This is to ensure that ArcelorMittal’s stake equals that of the Miglanis in the company. The open offer will cost ArcelorMittal Rs 415 crore.

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Uttam Galva stock rose nearly 10% to close at Rs113.70 on BSE on Friday, ahead of the announcement which means punters got a whiff of the deal beforehand. At this price, Uttam Galva’s is valued at Rs1,362.69 crore. The open offer is priced at a 5.54% premium to Friday’s closing price. Uttam Galva had net sales of Rs1,073.3 crore with profit after tax of Rs 42.49 crore for the June quarter.

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Rajinder Miglani believed to be a long time friend of Mittals, has said, “The whole purpose of the joint venture is to grow the business in India and transform Uttam Galva Steel from a galvanized player to an integrated steel maker.”

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This could be interesting as this could mean Mittal using Uttam Galva to operate integrated steel mill in India. It could well go ahead with backward integration with manufacturing of HR coils or basic steel which is processed to make more value added products. For Uttam Galva, in the immediate run, it would mean security on the raw materials front and value addition to the brand.

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ArcelorMittal plans to build a 12 million tonnes steel plant in Orissa, and the initial plan was to commission the first phase of the project by 2012. The India plan also includes setting up a similar greenfield project in Jharkhand. These projects have been languishing due to issue of land procurement with local protests in these states.

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Incidentally, Malay Mukherjee who has been a board member of ArcelorMittal, and one of the key people spearheading the Indian plans, has quit to join Essar Steel Ltd as its CEO.

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