Parcheesi is more than a game that entertains. It teaches risk management because it is not the one who counts the best who wins, but the one who understands that it is not enough to eat and add 20. In its oldest version it is a game —pachisi— originally from India. It is almost certain that the main 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%), the holding company financier of the March family, a prominent investor in Spain, a country where Parcheesi is still popular.
Both companies, with market capitalizations of over 3,000 million, are leading a game in the steel market that has awakened after the years of the pandemic and in which the rules have changed. It is about eating and not being eaten; maneuvers with a product like steel, expensive to produce but essential for industry.
The game started in May. Aperam, well located in Europe and Brazil and in search of new markets, approached Acerinox —strong in the EU, the US and Latin America— for a possible purchase that would give rise to a leader in stainless steel. He was going to be born “one of the main players global” in the production of stainless steel, according to analysts from Banco Sabadell and a good handle to stand out in a market dominated by China —the largest steel producer in the world— and in which Mittal needs to consolidate itself as the leading non-Asian producer.
For Aperam, the objective was and still is very appealing. Acerinox is a company with great operating leverage. If the market is strong, as it is after the pandemic, and prices are high, the benefits are significant. The company, which is listed at a maximum of five years, closed the 2021 financial year with the best results since its foundation, in 1970. Last year it earned 572 million euros, 11 times more than in 2020, and sales (58% more ) and earnings for the first quarter of 2022 point to new records.
The Spanish company employs 6,000 workers, has a presence on five continents, factories in four of them and supplies customers in 81 countries. Its strengths are the US and Europe, both from the point of view of production and sales. In Kentucky (USA), Acerinox maintains a plant, North American Stainless (NAS), considered the best in the world for capacity, efficiency and added value of its products.
Aperam-Mittal’s first score against Acerinox began in the spring. In June, the score became press information, via Bloomberg, and the operation went to waste. It lasted just four days. Acerinox left the board. In the words of the former president of the company, Rafael Miranda, “the suspension occurred after Aperam expressed its intention to buy the Spanish group and presented a non-binding price reference, which is not a price in itself.” In other words, Aperam did not open the portfolio wide enough. Knowledgeable sources of contacts need more. “They were asked for an indicative price,” they say, “but they were not open to negotiating. The proposal was not adequate.
Officially, Acerinox does not provide further details. Sources of investment managers consulted assure that the offer was below 14 euros per share (the value is now trading at 10.24 euros), in cash and in titles and with measures to overcome possible regulatory barriers that could affect the activity of factories such as Los Barrios (Algeciras). Now a holding compass has been opened. Both Acerinox and Aperam look at the market situation to consolidate the positions achieved in recent years through acquisitions. In 2021, Aperam purchased ELG, a stainless steel scrap recycling company; while Acerinox acquired VDM in 2020, a world leader in the development of special nickel alloys, as well as high-performance stainless steels. In Europe there is also movement. In 2020, the European Commission banned the creation of a joint venture between Tata Steel and ThyssenKrupp to bring together 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 of the sources consulted assume that the Mittal company will try again. They rule out the possibility of launching a hostile takeover bid, but they consider a new rapprochement with Acerinox very likely. Mittal does not throw in the towel easily and does not give up second parts. In 2006, the move to take control of Arcelor took six months of tense tug-of-war. Arcelor even announced a merger agreement with Severstal, the largest Russian steel company, to defend itself from Mittal’s takeover bid, which finally achieved its objective.
The game continues. “It is an obligation for companies like us to do this kind of prospecting. Acerinox has to keep thinking about where it can grow”, explained Miranda. What is in dispute is a market, that of stainless steel, which is growing at a good pace and which, once again, is immersed in changes.
chinese might
The business was dominated by Europeans and Japanese, but in recent years the world’s leading companies are Chinese. They have taken the top positions in the ranking supported by strong internal growth; the financing of the Chinese State to the sector and the strong environmental demands in Europe and Japan. But new winds are blowing. In recent years there has been a normalization of the market. Europe has taken steps antidumping to avoid the massive import of Chinese products not subject to the same environmental requirements and China has forced its companies to invest more in sustainability. Changes open up new opportunities. “The situation is positive”, assures the head of analysis for Renta 4, César Sánchez Grande. “Sales are on the rise, double-digit growth is expected and, although Asian imports are also growing, they 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 the industry and the improvement of efficiency are the axes of a strategy that will be supervised by a renewed command bridge. Carlos Ortega Arias-Paz, general director of the main shareholder, Corporación Financiera Alba, and proprietary director, has replaced Rafael Miranda as president of the company. Bernardo Velázquez remains as CEO. Parcheesi continues.
