JSW Steel today said it has acquired sponge iron maker Welspun Maxsteel Ltd in a deal worth more than Rs 1,000 crore.
This is one of the biggest deals in the domestic steel sector in the recent times.
Both companies have entered into a definitive agreement for the deal.
JSW Steel would acquire the entire equity shares held by Welspun Enterprises Ltd in Welspun Maxsteel Ltd "for an enterprise value of Rs 1,000 crore plus net current assets", according to a statement.
In the statement, JSW Steel said Welspun Maxsteel is situated in close proximity to its Dolvi unit, offering complementary infrastructure and location to augment the current envisaged expansions.
JSW Steel, which has an installed capacity of 14.3 million tonnes per annum (MTPA), has a strategic plan to increase its steel production to 40 MTPA in the long-term.
"This acquisition is value accretive to JSW Steel due to synergies in supplying surplus pellets to WMSL (Welspun Maxsteel) and use of DRI (Direct Reduced Iron) from WMSL in company's steel-making operations at Dolvi plant," JSW Steel Joint MD and Group CFO Seshagiri Rao said.
In a regulatory filing, Welspun Enterprises said Welspun Maxsteel would be sold for an enterprise value of Rs 1,000 crore in addition to net current assets as on August 31, 2014.
"This sale will enable JSW Steel... To effectively utilise the WMSL facility and further expand the business for achieving its strategic goal," it noted.
According to the filing, in the past few years Welspun Maxsteel has not been able to operate at its optimum capacity due to irregular supply of natural gas from contracted suppliers.
JSW Steel shares at BSE today closed at Rs 1,276.50, up 0.14 per cent compared to its previous closing.
Shares of Welspun Enterprises ended at Rs 256.75, down 4.77 per cent from its previous close.
Welspun Maxsteel has an installed capacity of 0.9 MTPA gas-based DRI plant, with a captive jetty and a captive railway siding. DRI plant is located in Raigarh district of Maharashtra. It also vacant land that can be utilised for future expansions.
Meanwhile, JSW Steel said it has surplus pellets in its subsidiary Amba River Coke Ltd and the same would be supplied to Welspun Maxsteel.
"The cost of production of WMSL is expected to come down due to replacement of significant portion of its bought-out pellets with captive pellets.
"The DRI produced by WMSL shall initially be used partly by the company's Dolvi unit, and would be consumed in the entirety post completion of its ongoing expansion to 5 MTPA," JSW Steel said.
