On Friday, ArcelorMittal (MT) said it planned to launch a tender offer for acquiring a 29.4% stake in Uttam Galva Steels Ltd. (“Uttam Galva”), a leading producer of cold rolled steel, galvanized products and color-coated coils & sheets based in Western India.

The offer price of Rs.120 or $2.46 per share represents a 27% premium over the 2-week volume weighted average and 85% over the 6-month volume weighted average.

Last week, the company had agreed with existing founder, the RK Miglani family, to buy 5.6% shares of Uttam Galva. ArcelorMittal also signed a contract with the RK Miglani family and Uttam Galva in order to become a co-promoter and obtain broad joint control rights in the concern.

Subject to 29.4% of shares being tendered in the offer, ArcelorMittal will hold a 35% equity interest in Uttam Galva. The transaction value for the stake is Rs.5 billion or $103 million, implying an estimated enterprise value of Rs. 28 billion or $560 million. The close of both transactions is subject to customary approvals.

Uttam Galva has its main operating facility in Khopoli near Mumbai, India and has 1,400 employees. ArcelorMittal will make its first major manufacturing presence in India through this deal.

ArcelorMittal expects a surge in steel demand in the coming months largely due to the technical recovery occurring as inventory de-stocking nears completion. Although the sector scenario remains unpredictable, we expect gradual sales recovery in the next couple of quarters.

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