Experts split over Commission reaction to giant steel take-over

Date: 22/10/1998

By Chris Johnstone

STEEL sector analysts are warning that European Commission competition officials may attach conditions to the creation of Europe's biggest steelmaker through the take-over of Belgium's Cockerill Sambre by France's Usinor before they approve the deal.

Industry experts have pinpointed a number of areas where the Commission could ask the companies involved to alter the deal or shed some activities as the price for clearance.

However, they believe that none of these demands is likely to put the take-over in jeopardy.

Usinor and Cockerill Sambre signed an agreement last week which committed the French company to take a 75&percent; stake in Cockerill for around 1 billion ecu.

The deal marked the end of Cockerill's ten-year search for a partner which could turn it from one of Europe's middle-sized steelmakers into one of its biggest players. The Franco-Belgian combination will rank as the world's third largest steelmaker.

But overlaps between the two companies in coated steels - the top-of-the-range steels which are used for white goods and car bodies - could pose problems, according to Thierry Hazevoets, steel research coordinator with ING Barings Europe.

With Cockerill on board, Usinor will become Europe's leading supplier of sheet steel to the car industry with a combined market share of around 35&percent;.

Usinor and Cockerill's strong position in the marketing and sale of steel products in France could also raise concerns in the Commission, adds Hazevoets. “They are the number one and two companies here,” he pointed out.

However, some industry analysts believe the Commission will give what is likely to be the last in a recent raft of European steel sector mergers and take-overs a relatively easy ride. “I would expect the scrutiny to be fairly benign,” said one source.

Eurofer, the trade lobby for the EU's largest steel companies, says the Commission has taken the view that consolidation is good for the industry. “Even after a wave of consolidation, European steel companies are still fairly small on a world-wide scale,” said a spokesman.

The largest previous merger in the sector, between Germany's Thyssen and Krupp Stahl to create what will be Europe's second biggest steelmaker, was approved by the Commission without any demands that it shed or alter any of its core activities.

Usinor is widely viewed by analysts, and the share markets, to have secured its take-over of Cockerill for a relatively low price, with the Walloon regional government agreeing to a far smaller sum than it was expected to accept a few months earlier.

The shadow of a world steel crisis - with the US already closing its doors to cut-price exports from Asia and parts of Europe, and the EU on the verge of similar action - depressed the sale price.

The Walloon government, worried about job losses in the Belgian unemployment black spots of Liège and Charleroi, has also attached a proviso that it will remain involved in all major strategic decisions affecting the company for the next five years.

Meanwhile, Eurofer is on the verge of filing anti-dumping complaints with the Commission against exports of hot-rolled coils, wire rod and cold-rolled steel. Bulgaria, India, Indonesia, Iran, Korea, Yugoslavia, South Africa and Taiwan are reported to be the initial targets for the complaints, but Eurofer has so far refused to confirm this.

Demand for steel is at a standstill, stock levels are high and total imports into the EU are up around 70&percent;. “We are facing a catastrophic situation,” said a Eurofer spokesman.

“We have seen a total turn around in the last few months and are now facing the extraordinary situation of having a trade deficit in steel by the end of the year. Usually we have a surplus of about 10 million tonnes,” he added.