Ukraine Iron and Steel Companies Discuss Merger

Talks are continuing between Ukraine's Ilyich Iron and Steel Works of Mariupol OJSC (Mariupol, Ukraine) and Metinvest Holding (Donetsk, Ukraine) about a possible merger that would create one of the world's top 20 steel producers.

Metinvest is one of more than 100 companies that comprise the privately owned Ukraine financial and industrial company System Capital Management (Donetsk). Metinvest is currently the world's seventh-largest iron ore producer and is among the world's top 30 steel producers. The company is Ukraine's largest iron ore producer and has assets in the United States, the United Kingdom, Italy, Bulgaria and Switzerland.

Ilyich was founded in 1897 in Mariupol, taking advantage of local raw materials, fuel sources and a seaport. By the early 1900s, the company had become the largest metallurgical works in southern Russia. Today, the company produces high-quality steel plate for shipbuilders, gas pipes and water pipes, and is Ukraine's sole producer of cold-rolled galvanized steel sheets. At the end of May this year, the Ukrainian State Commission for Securities and Stock Market confirmed that three Cyprus-based companies–Emorsa Limited, Liberani Company Limited and Rewein Limited–had each purchased a 24.99-percent share in Ilyich Stal, the holding company that owns about 90 percent of Ilyich. Another Cyprus company, Formigos Holdings Limited, had purchased a further 25 percent of Ilyich Stal, giving the Cypriot companies a 99.97-percent holding in Ilyich.

The confirmation came only days after a claim by a representative of Formigos Holdings that a Russian financial industrial group had acquired Ilyich. At the time, the CEO of Ilyich, Vladimir Boyko, denied rumors of the sale, stating that the structure of the shareholding in the company had not changed, calling statements of the company's sale "lies." Now that the ownership of the controlling interest has been confirmed, Vladimir Boyko has stated the intention of Ilyich to merge with Metinvest in order to secure its supplies of raw materials. "We need to merge with a partner who has a raw-materials base," said Mr. Boyko. "That is why we are currently negotiating with Metinvest–firstly because it is a Ukrainian company, and secondly because it has raw materials: ore, concentrate and coke. From our side, there is a strong company and staff," he continued.

However, some analysts are uncertain how the merger–or takeover–would be managed. Whether Metinvest will retain Ilyich's current management is unclear, and if not, whether the Ilyich management team would be willing to leave the company. The global financial crisis has left Ilyich struggling for survival. Mr. Boyko commented, "The companies that survive in these circumstances are those that have the production base, the raw materials and the streamlined sales system. The main condition for any combination would be to protect the interests of employees and the city of Mariupol."

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