Parcheesi is more than an entertaining game. It teaches risk management because it is not the one who counts best who wins, but the one who understands that eating and adding 20 is not enough. In its oldest version it is a game –pachisi– originally from India. It’s almost certain that the major shareholders of two of the world’s largest steel companies, Acerinox and Aperam, know the game. Aperam is 40% controlled by the Mittal family, originally from India, while Acerinox’s main shareholder is Corporación Financiera Alba (18%). holding company Financier of the March family, a prominent investor in Spain, a country where Parcheesi is still popular.
Both companies, with market caps in excess of 3,000 million, are spearheading a game in the steel market that has woken up after years of the pandemic and the rules of the game have changed. It’s about the food and not the food; Maneuvers with a product like steel, which is expensive to produce but essential to industry.
The game started in May. Aperam, well positioned in Europe and Brazil and looking for new markets, approached Acerinox – strong in the EU, US and Latin America – for a potential purchase that would result in a leader in stainless steel. He would be born “one of the most important player global” in the production of stainless steel, according to analysts at Banco Sabadell, and a knack for distinguishing itself in a market dominated by China – the world’s largest steel producer – and where Mittal is a leading non-Asian producer.
For Aperam, the goal was and is very appealing. Acerinox is a highly leveraged company. When the market is strong, like post-pandemic, and prices are high, the benefits are significant. The company, which has been listed for a maximum of five years, closed the 2021 financial year with the best result since it was founded in 1970. Last year, with 572 million euros, it generated eleven times more than 2020 and sales (58% more). ) and the result for the first quarter of 2022 point to new records.
The Spanish company employs 6,000 people, is present on five continents, has factories in four of them and supplies customers in 81 countries. Its strengths are the US and Europe, both from a production and distribution perspective. In Kentucky (USA), Acerinox has a plant, North American Stainless (NAS), which is considered the best in the world in terms of capacity, efficiency and the added value of its products.
Aperam-Mittal’s first goal against Acerinox came in the spring. In June, the score became a press release via Bloomberg, and the operation came to nothing. It only lasted four days. Acerinox left the board. In the words of the company’s former president, Rafael Miranda, “the suspension came after Aperam announced its intention to buy the Spanish group and provided a non-binding price reference, which in itself is not a price.” In other words, Aperam has the portfolio is not open wide enough. Knowledgeable contact sources need more. “They were asked for a target price,” they say, “but they weren’t willing to negotiate. The suggestion was not appropriate.
Acerinox does not officially give any further details. Sources consulted investment managers assure that the offer was below 14 euros per share (the value is now trading at 10.24 euros), in cash and in securities and with measures to overcome possible regulatory obstacles affecting the activity of factories like Los Barrios could (Algeciras). Now a holding compass has been opened. Both Acerinox and Aperam are monitoring the market situation in order to consolidate the positions achieved through acquisitions in recent years. In 2021, Aperam bought ELG, a stainless steel scrap recycling company; while in 2020 Acerinox acquired VDM, a world leader in the development of specialty nickel alloys and high-performance stainless steels. There is also movement in Europe. In 2020, the European Commission banned the creation of a joint venture between Tata Steel and ThyssenKrupp to combine their steel businesses in Europe. The movements are due to the situation of a market that offers low profitability, with high energy costs and environmental requirements that make the product more expensive.
Analysts and shareholders are wondering what Aperam’s next move might be. Most sources consulted assume that the Mittal company will try again. They rule out a hostile takeover bid, but consider a renewed rapprochement with Acerinox to be very likely. Mittal doesn’t throw in the towel so quickly and doesn’t do without second games. In 2006, the move to take control of Arcelor took a six-month tug-of-war. Arcelor even announced a merger agreement with Severstal, Russia’s largest steel company, to resist Mittal’s takeover bid, which eventually achieved its goal.
The game goes on. “It is an obligation for companies like us to conduct this type of prospecting. Acerinox has to keep thinking about where it can grow,” explains Miranda. One market at stake is stainless steel, which is growing at a good pace and is once again being permeated by change.
The business has been dominated by Europeans and Japanese, but in recent years the world’s leading companies are Chinese. They have taken the top positions in the rankings, supported by strong internal growth; Chinese government funding for the sector; and strong environmental demands in Europe and Japan. But new winds are blowing. The market has normalized in recent years. Europe has taken steps anti-dumping to avoid massive imports of Chinese products that are not subject to the same environmental requirements, and China has forced its companies to invest more in sustainability. Change opens up new possibilities. “The situation is positive,” assures Renta 4’s head of analysis, César Sánchez Grande. “Sales are increasing, double-digit growth is expected and imports from Asia are also increasing, but are not harmful due to the rising price level. The excesses of the past are not recorded,” he concludes.
In this framework, Acerinox has a relatively comfortable position. The production of special steels for industry and the improvement of efficiency are the axes of a strategy overseen by a renewed navigating bridge. Carlos Ortega Arias-Paz, general manager of the main shareholder Corporación Financiera Alba and proprietary director, has replaced Rafael Miranda as president of the company. Bernardo Velázquez remains CEO. Parcheesi continues.