Hyundai Steel shares hit a new high on Mittal rumour

SEOUL/BEIJING: Shares in Hyundai Steel surged more than 14% to a record on Friday on speculation that Arcelor Mittal was seeking to take over the $4.8-billion South Korean firm. Talk that Hyundai Steel may come into play first surfaced last week when Steel Week, a local industry magazine, speculated in an article that South Korea’s second-largest steel firm, after POSCO, would make a good target for Arcelor Mittal.

The speculation grew to a feverish pitch on Friday after Morgan Stanley analysts touted in a research note the “strategic merits” behind a tie-up, although they made clear they had “no knowledge of whether or not any transaction will occur”.

The US investment house estimated that Hyundai Steel could be worth 61,191 won per share in a takeover, valuing the South Korean firm at 5.6 trillion won ($6.05 billion).

Shares in the steel maker surged 14.44% on Friday to 51,500 won, after earlier hitting a record 51,700 won. The gains added 552 billion won to Hyundai Steel’s market capitalisation, raising it to 4.4 trillion won ($4.75 billion).

A spokesman at Hyundai Steel said the firm has not been approached by Mittal while a source familiar with the situation played down talk of Mittal Steel bidding for Hyundai Steel.Arcelor Mittal, headquartered in Luxembourg, declined to comment. “We don’t comment on market rumours,” said a spokesman for the world’s largest steel maker.

Arcelor Mittal’s deep pockets and its commitment to consolidate the steel industry has prompted continued M&A speculation recently involving takeover targets such as AK Steel, Vallourec or POSCO.

The rumours in Seoul come in the same week that Arcelor Mittal was thought to be interested in acquiring AK Steel, triggering a surge in the US steel maker’s shares.South Korean investors have sent up shares of steel makers such as POSCO, the world’s third-biggest steel maker, to records this year, believing local firms may become attractive targets amid a consolidation of the global steel sector.

Morgan Stanley said Hyundai Steel, part of the Hyundai Motor Group that also controls South Korea’s top auto maker Hyundai Motor, would make a more attractive takeover target given that its market value of around $4 billion is a fraction of POSCO’s $35 billion.

By buying Hyundai Steel, Arcelor Mittal would gain a steady customer base in Hyundai Motor and its affiliate Kia Motors, Morgan Stanley analysts Jonathan Rhee and Charles C Spencer wrote in their note to clients dated Thursday. Last year, Hyundai Steel announced a plan to build a 5.24 trillion won steel mill by 2010 to ensure stable supplies for the auto maker. The mill, with a capacity of up to 8 million tonnes, would make Hyundai Steel the world’s 10th-largest steel maker.