Mumbai: Vedanta Resources Plc agreed to buy Mitsui & Co.’s entire stake in Indian iron-ore exporter Sesa Goa Ltd. for $981 million, beating rivals including Arcelor Mittal to secure supplies of the steel-making raw material.
Vedanta, the biggest producer of copper and zinc in India, will pay Rs2,036 ($49) per share for a 51% stake, the London-based company said today. Vedanta will offer to buy a further 20% for at least the same price. Adviser Nomura Holdings Inc. will lend $1.1 billion to fund the takeover.
Chairman Anil Agarwal beat two fellow Indian billionaires, Lakshmi Mittal and Kumar Mangalam Birla, to secure supplies of iron ore China needs to fuel its economic boom. Anglo American Plc yesterday agreed to pay $1.5 billion for about half of a Brazilian iron-ore project.
Rs.The name of the game is procurement of raw materials,’ Michael Skinner, a London-based analyst at Standard Bank Plc, said by phone from Dubai. Rs.Vedanta will look for an integrated model and wants to start right at the beginning. Everybody is looking for raw materials.’
Competition for Sesa Goa drove its shares to a record Rs2,000 on 29 January, valuing the miner at $1.8 billion. Vedanta is paying a 17% premium over yesterday’s closing price to get its first iron ore mine in India, where demand for steel is growing at almost twice the global average fuelled by economic growth of more than 9 % this year. India has the world’s fifth-biggest iron-ore reserves.
Vedanta acquired all of Mitsui’s Finsider International Ltd., which owns the holding. The company said 71% of Sesa Goa will cost $1.37 billion, which it will fund using the loan from Nomura and its own cash.
Chairman Agarwal will brief reporters today in Mumbai.
Iron ore contract prices may rise 10% next year on expectations of rising demand from China, Macquarie Bank Ltd., the largest investment bank in Australia, said on 15 March. The bank had previously forecast a 15% drop in the price of the steelmaking material in 2008.
Citigroup Inc. also raised its forecast this month to a 7 % increase, reversing an earlier estimate of a 20% fall as Chinese steelmakers may import more of the raw material this year and 7.4% more in 2008, analyst Alan Heap said in a 6 March report.
Lakshmi Mittal, who plans to spend $9 billion on a venture in India, said on 21February that he is considering bidding for the iron-ore miner. Mittal has yet to secure mining licenses for the project and buying Sesa Goa would have helped secure supplies for the 12 million ton plant.
Aditya Birla Group’s Essel Mining & Industries Ltd. had also bid for the iron-ore mining company.
Vedanta has most of its operations in India, where steel demand is forecast to rise 7.7% a year from 2010 to 2015, faster than the 4.2 % growth globally, according to the International Iron and Steel Institute. Goldman Sachs Group Inc. on 22 January said Indians will use five times more motor vehicles and three times more crude oil between now and 2020 as per-capita incomes quadruple in the period.
Vedanta’s offer to buy shares from investors will run for three months, it said in a statement. Under Indian law, a company buying more than 20% of another company must make an offer to acquire a further 20% of its shares.
Founded in 1954, Sesa Goa has iron-ore mines in the states of Goa, Karnataka and Orissa, and sold 9.6 million tons of the commodity in the year ended March 2006. Mitsui invested in Sesa Goa in October 1996.
Vedanta, India’s largest producer of zinc and copper, also operates plants in Zambia and Australia. Chairman Agarwal is the largest shareholder with 54%.
Morgan Stanley advised Mitsui on the sale.