By Li Zhiguo
According to information released by SASAC on September 22, Baosteel Group and Wuhan Iron and Steel (Group) Corp. have implemented merger and reorganization in an attempt to develop a world-class platform of technology innovation, industrial investment and capital operation in the iron and steel industry by joint efforts. Baoshan Iron & Steel and Wuhan Iron & Steel subordinated to Baosteel Group and Wuhan Iron and Steel Group respectively will also be merged and restructured by stock conversion and acquisition of Wuhan Iron & Steel by Baoshan Iron & Steel.
At night on 22, Baoshan Iron & Steel and Wuhan Iron & Steel released the Statement of Consolidation by Merger simultaneously and Baoshan Iron & Steel issued A shares to all shareholders of Wuhan Iron & Steel to absorb the stocks of Wuhan Iron & Steel by stock conversion. After merger, the listed company will become one of top three steel enterprises in crude steel yield. According to an insider, under the context of a new round of steel industry merger and restructuring with the target of structural reform of eliminating excess capacity on the supply side and improving concentration ratio, Baoshan Iron & Steel and Wuhan Iron & Steel, both of which are under the administration of the central government will play a demonstrative role and their merger and restructuring can be called a milestone event in the development course of China's iron and steel industry.
A giant listed steel company arising
From the perspective of group, after the merger and restructuring of Baosteel Group and Wuhan Iron and Steel Group, they will adhere to the development principle of being high-end, intelligent, green and service-oriented, carry out the business portfolio of extra powerful steel business and cooperation with related industries", focus on being refined, powerful and excellent in the steel business, fully improve the global influence, strengthen the complete support of related industries for the development of steel business and create the most competitive intelligent and green ecosphere of iron and steel industry. After the merger and restructuring, Baoshan Iron & Steel and Wuhan Iron & Steel established the strategic target to be "the most competitive steel enterprise in the world and one listed company of the highest investment value".
After the merger and acquisition, strenuous efforts will be made to mine the profound synergistic effect of major products, technology research and development, selling network, business layout, purchasing management, cutting and delivering and logistics system, which will be favorable for optimizing resource allocation, reducing overlapping investment, decreasing operating costs and promoting the enterprise to improve quality and efficiency.
In terms of the joint-stock company, according to the Statement, the average stock trading price of 20 trading days before the announcement of board resolution regarding the stock conversion and merger reviewed for the listed is taken as market reference price for the stock conversion price of Baoshan Iron & Steel and Wuhan Iron & Steel and not being than 90 percent of the market reference price as the pricing principle. Therefore, the conversion price is decided as RMB 4.60 yuan/share of Baoshan Iron & Steel and RMB 2.58 yuan/share of Wuhan Iron & Steel. The conversion ratio between Wuhan Iron & Steel and Baoshan Iron & Steel decided based on the above conversion price is 1∶0.56, which is one stock of Wuhan Iron & Steel is converted into 0.56 share of Baoshan Iron & Steel.
Meanwhile, Baoshan Iron & Steel will merge and acquire Wuhan Iron & Steel and all existing assets, liabilities, business, personnel, contracts, qualifications and all other rights and obligations will be carried on by Wuhan Iron and Steel Co., Ltd. and since the delivery day, 100 percent shares of Wuhan Iron and Steel Co., Ltd. will be controlled by Baoshan Iron & Steel.
After successful deal, the listed company after merger will achieve greatly increased strength and become an incontrovertible leader in both revenue and yield in China's iron and steel industry. As for the listed company, the company will rank third in crude steel yield in global listed iron and steel enterprises. From the perspective of group, the yield will surpass that of Hebei Iron and Steel, only second to ArcelorMittal, one leader in European iron and steel industry.
Leading a new round of industry restructuring wave
At present, China's iron and steel industry is confronted by excess capacity and the contradiction of oversupply. According to data, the crude steel yield in China's iron and steel industry in 2015 was 804 million tons, accounting for 49.5 percent of world total, while the capacity factor was merely 67 percent. In recent years, the consumption volume of iron and steel has declined year on year and overall industry is suffering a downward trend as a whole.
Some believe that lower capacity factor and serious imbalance of supply and demand will be rather prominent in China's iron and steel industry for a long time to come. Thus, resolving excess capacity in China's iron and steel industry has arisen to be the top priority to gain profits, adjust, transform and upgrade.
Meanwhile, China's iron and steel enterprises are scattered too widely, affecting the effect of policies to resolve excess capacity. The market share of top enterprises in China's iron and steel industry in 2015 declined to 34.2 percent and the industrial concentration dropped to the lowest point in recent ten years,
In March 2015, the Ministry of Industry and Information Technology solicited public opinions regarding the Adjustment Policy of Iron and Steel Industry and further proposed to further organize structure optimization and adjustment of the iron and steel industry and speed up merger and restructuring. In addition, it was also proposed that the proportion of crude steel yield of the top ten iron and steel enterprises in national total will not be lower than 60 percent and that 3-5 globally competitive super large iron and steel groups will be developed by 2025. The Central Economic Working Conference held at the end of 2015 proposed that intensive efforts will be made to promote structural reform on the supply side, listed "resolving excess capacity" as one of the five tasks of national economic work and required that since 2016, 5 years of efforts will be made to decrease the crude steel yield from 100 million tons to 150 million tons.
Under such a context, the merger and restructuring of the two companies will serve as a benchmark for iron and steel industry integration and play a demonstrative role and are also placed with great expectations.
Insiders believe that the merger and restructuring of the two companies accords to the requirement of "resolving excess capacity" and industry transformation and upgrading and is favorable for optimizing the industrial structure, improving industrial concentration, balancing internal capacity, integrating different production bases and production lines by cooperation and accelerating the elimination and shutdown of a batch of inefficient and invalid enterprises. The merger and restructuring of the two companies is also an important move to deepen reform of state-owned enterprises, establish and improve market system and mechanism and follow the direction of establishing state-owned capital investment companies, and will be beneficial to promoting resource concentration for superior enterprises, strengthening innovation of business model and management, concentrating resources to develop and apply cutting-edge technology, further improving the technology research and development ability of strategic products, and form a large iron and steel group backed on technology research and development advantages so as to make contributions to improving the international competitiveness and influence of China's iron and steel industry.
Synergistic effect emerging after merger and restructuring
According to the announcement, the merger of Baoshan Iron & Steel and Wuhan Iron & Steel will optimize resource allocation for two listed companies and improve their quality and efficiency. Synergistic effect will be produced in research and development, purchase, production, marketing, products, technology innovation and corporate culture, etc.
At present, the production of Baoshan Iron & Steel is mainly concentrated on the production bases in Baoshan of Shanghai, Meishan of Nanjing and Dongshan of Zhanjiang, while the production of Wuhan Iron & Steel is on Qingshan of Wuhan.
After the merger, the listed company will plan in an all-around way the layout of the four major production bases, completely integrates the coastal and riverside strategic positions in China as well as the location superiorities of main steel business in a multi-angle and systematic manner and rationally divide and distribute surrounding markets so as to dock with Chinese and global customers and radiate economic regions along the 21st-Century Maritime Silk Road. Efforts will be made in intensive allocation and deployment of raw materials and transport and warehousing of finished products to achieve decreased cost and improved efficiency through optimizing the layout of production bases.
In terms of research and development, both Baoshan Iron & Steel and Wuhan Iron & Steel have powerful resources and the listed company after merger will integrate research and development resources, concentrate superior resources, share service platforms and improve the research and development efficiency.
With regarding to purchase and cooperation, the listed after merger will benefit from expanded purchase scale of raw materials and spare parts, optimized logistics and warehouse management and shared suppliers' good reputation so to decrease the comprehensive purchase cost of the enterprise.
In addition to the massive excess capacity, China's iron and steel enterprises also lag behind in competitiveness in the high-end field.
In this regard, Baoshan Iron & Steel and Wuhan Iron & Steel have taken the lead in high-end products and both have strong capacity in manufacturing sheet. Besides series products of sheets, Baoshan Iron & Steel is also superior in manufacturing steel tubes, while Wuhan Iron & Steel has advantages in manufacturing heavy rail and structural bridge steel.
Through merger and restructuring, both companies can copy and integrate the outcomes of the other in auto sheet, silicon steel, tinning (chroming) plate, engineering steel and high-grade sheet so as to improve their respective manufacturing capacity of iron and steel, enhance the advantageous position of their core and important strategic goods, bear the important task of developing high-end products and create one giant iron and steel manufacturing enterprise of all-variety steel products with optimized capacity structure.
With respect to marketing synergy, the listed company after merger will integrate their marketing service system and create industry-leading and future-oriented service merits. In terms of channel integration, the two companies will carry out the strategy of "one body with two wings" and establish the most competitive iron and steel service sharing ecosphere through the third-party service platform of Ouyeel.