A new steel giant would be established in Russia if a merger of the Evraz Group, one of the world's largest vertically integrated steel producers and mining businesses, and Severstal takes place.
A newly established company could become the world’s 8th largest steel producer, with a capitalization of $18.7bn.
The idea of merging of the companies has been discussed in the market since 2007 when Roman Abramovich, who owns 35% in Evraz, was the main initiator of this idea. At that time, in an interview in the Financial Times he said a merger with a competitor was "quite a good idea" which has "some advantages". Severstal agreed that the idea ‘is not so bad’, at that time, but no official tender arose from either company.
The idea of consolidation may be in the interests of the major shareholders of Evraz Group (Roman Abramovich, Alexander Abramov and Alexander Frolov).
Analysts believe that the business of the two companies perfectly complement each other. With a relatively equal size of business (in 2010, Evraz and Severstal were ranked 18th and 21th as global steel producers), they specialise in different kinds of steel products. If the area of specialisation of Evraz is long products and fittings and steel pipes for the oil and gas industry, and Severstal is strong in the production of flat steel. Both companies also operate subsidiaries in the USA, where Evraz focuses on the production of steel from scrap, while Severstal – from iron ore. Together they can produce more than 31Mt/y of crude steel.
Some preparations may have already been made: both companies for the last six months have been involved in a number of major corporate actions. If Severstal’s plans to divest its gold mining business go through, and Evraz succeeds in selling one of Russia’s largest coal mines (Raspadskaya), thereby reducing its debt load, then talk of consolidating may again emerge.
At present, the financial and production situation at Evraz is not good; it has large debts and production was down in Q2 and Q3 2011. Severstal’s position looks much better and there are presently no comments from them about a possible merger.