Arcelor Mittal, the world's largest steelmaker, is looking to acquire AK Steel, the Financial Times reported on its Alphaville Web site on May 08, triggering a surge in AK Steel shares.
JP Morgan analyst Michael Gambardella downplayed the report, saying in a note that the AK Steel board and managers have been heavy inside sellers in recent weeks, which would argue against them being in deal talks.
He also wrote that an acquisition could face regulatory issues since it would reduce the number of domestic coated sheet suppliers to the auto industry from three to two.
Mittal might be able to get around the regulatory hurdle by selling assets, but the analyst said he did not anticipate that the company would want to do so.
Shares of Ohio-based AK Steel rose 9.2 percent, or $2.94, to $35 in New York. FT Alphaville, which did not cite its sources or say how many people confirmed the report, said a deal could value AK at up to $40 per share, or just under $4.5 billion.
"We don't comment on market speculation," said Arcelor Mittal spokesman Jean Lasar. An analyst covering Arcelor Mittal who declined to be named said he doubted Arcelor Mittal would go ahead with such a deal, pointing out possible anti-trust issues.
"I see little chances of that happening," he said. A European investment banker who follows the steel sector agreed and said an acquisition could raise competition concerns in the flat carbon market for the automotive industry in North America.
Arcelor Mittal previously committed to divest its US steel plant at Sparrows Point to address US competition concerns after it decided to keep Arcelor's Canadian unit Dofasco within the new merged group formed by Mittal's acquisition of Arcelor.
"They already have to sell Sparrow Points to close the Arcelor take-over. Do you think they could do this one?" the banker asked. Arcelor Mittal shares fell 2 percent to $56.35 on the New York Stock Exchange.
AK Steel reported more than $6 billion in sales in 2006. In its first-quarter earnings release, AK Steel said net earnings were $62.7 million, or 56 cents per share, compared with $6.2 million, or 6 cents per share, a year earlier.