Korean steelmaker, POSCO (PKX) recently announced it will acquire a stake in Southeast Asia's largest stainless steel producer Thainox Stainless Pcl. for KRW305.9 billion or $287 million.
The company currently owns a 15.39% stake in the target company. POSCO will also obtain the additional stake of Mahagitsiri family for 2.20 baht per share.
POSCO proposes to buy the remaining stake between September and October in 2011.
However, Posco would terminate the tender if it is unable to get at least 51% stake of the target company.
Thainox has an annual production capacity of 200,000 tons of cold-rolled stainless steel which is going up to 300,000 tons, as it plans to provide better assistance to its existing customers and satisfy the rising demands for stainless steel consumption.
With this acquisition, Posco will increase its presence in the Southeast Asian market and improve global competitiveness in the stainless business.
The company has been eyeing Thainox for a long time, but could not proceed due to political issues in Thailand.
POSCO is the world’s third largest steelmaker on the basis of output. The company primarily manufactures steel for the shipping and construction industries and operates through its two steel production facilities, the Pohang Works and the Gwangyang Works.
The company is well positioned to benefit from a wide regional diversification and higher proportion of value-added products in its product mix over the longer term.
We currently have a long-term Neutral recommendation on POSCO.
However, in the short term we have a Zacks #5 Rank (Strong Sell rating) as the rising competition and higher raw material costs are expected to aggravate price competition and impact margins and revenues. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.
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