ArcelorMittal Closes Strategic 28% Stake Buy in Vallourec

ArcelorMittal S.A. MT recently completed the acquisition of 65,243,206 shares, representing approximately 28.4% equity interest in Vallourec. This follows the signing of a Share Purchase Agreement on Mar 12, 2024, and the subsequent approval from relevant antitrust authorities and clearances under foreign investment regulations. The shares were acquired at €14.64 per share from funds managed by Apollo Global Management Inc for a total consideration of approximately €955 million (roughly $1,043 million), subject to the successful completion of the settlement.

Following the completion of the transaction, Genuino Magalhaes Christino, chief financial officer of ArcelorMittal, will become the director of Vallourec. Keith Howell, chief operating officer of ArcelorMittal USA, will be appointed as a director of Vallourec as well. Aditya Mittal will take on the role of observer, subject to the successful settlement.

ArcelorMittal stated that it does not intend to launch a tender offer for the remaining shares of Vallourec over the next six months but will inform the market if this intention changes.

In its comments on the acquisition, ArcelorMittal emphasized Vallourec's strong position as a leading producer of high-quality tubular products within a market segment poised for growth, mainly driven by emerging clean energy markets. The company highlighted the strategic stake in Vallourec as a valuable addition to its investment portfolio and expressed its commitment to supporting Vallourec's management team in their efforts to enhance performance.

MT underscored that this acquisition aligns with its broader growth strategy. The company noted that recent acquisitions in Brazil and the United States are delivering strong results. Significant progress is being made on various organic growth projects, many of which are expected to reach completion this year. These initiatives are anticipated to considerably bolster MT's business by expanding product capabilities, increasing exposure to emerging markets and enhancing overall earnings capacity.

The stock has lost 18.9% in the past year against the industry's 18.6% fall.

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In second-quarter earnings call, the company revised its projection for global steel consumption growth, excluding China, to 2.5-3% for 2024, down from its previous estimate of 3-4%. The company continues to forecast capital expenditures for 2024 within the range of $4.5-$5 billion, with $1.4-$1.5 billion allocated to strategic growth projects. The company expects a $1.6 billion-investment in working capital made in the first half of 2024 to reverse by the year-end, supporting a positive outlook for free cash-flow generation. Completing strategic growth projects is anticipated to lead to structurally higher EBITDA and investable cash flow in the future.

Zacks Rank & Key Picks

ArcelorMittal currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Basic Materials space are Newmont Corporation NEM, Franco-Nevada Corporation FNV and Ashland Inc. ASH. Newmont and Franco-Nevada sport a Zacks Rank #1 (Strong Buy), and Ashland currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Newmont's current-year earnings is pegged at $2.82, indicating a rise of 75% from year-ago levels. The consensus estimate for NEM's earnings has increased 16% in the past 60 days.The stock has gained nearly 20.9% in the past year.

The Zacks Consensus Estimate for FNV's current-year earnings is pegged at $3.27. The consensus estimate for FNV's earnings has increased by 3% in the past 60 days. FNV beat the consensus estimate in the last four quarters, with the average earnings surprise being 10.5%.

The Zacks Consensus Estimate for ASH's current fiscal year earnings is pegged at $4.6, indicating a year-over-year rise of 13%. ASH's earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing it once, the average earnings surprise being 27.4%. The company's shares have increased 5.4% in the past year.

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