Severstal reaches agreement to acquire Sparrows Point

Severstal  today announced that it has reached an agreement to purchase Sparrows Point, a fully-integrated steel mill based in Baltimore, Maryland, United States.

Sparrows Point, currently owned by ArcelorMittal, is being sold by Joseph G. Krauss, Divestiture Trustee, as required by the Final Judgment entered on May 23, 2007 in the United States District Court for the District of Columbia (the “District Court”) in the matter known as United States v. Mittal Steel Company N.V., to settle a complaint filed by the United States Department of Justice following the merger agreement between Mittal Steel and Arcelor SA in 2006.

Severstal has agreed to acquire Sparrows Point LLC for an all cash purchase price of US$810 mln. The transaction reflects a significant strategic opportunity to add complementary assets and scale to Severstal’s existing U.S. business.

Sparrows Point has a capacity of 3.6 mln metric tn of crude steel and shipped 2.3 mln metric tn of finished steel products in 2007; it is the only integrated producer of flat rolled steel on the U.S. East Coast and is a major North American supplier of tin mill products.

Severstal expects to realize significant business improvements and synergies at Sparrows Point in conjunction with a five-year investment program at the plant. The transaction is expected to be accretive in year one based on current projections of costs and prices and offers value creation potential. Additionally, the Company expects substantial synergies with its current U.S. operations in Dearborn, Michigan and Columbus, Mississippi. With the addition of Sparrows Point, Severstal will also improve its distribution channels and increase its geographic reach as the plant provides direct ocean access and proximity to a number of major U.S. railways and highways.

Alexei Mordashov, CEO of Severstal, commented, “With Sparrows Point, Severstal brings into its U.S. portfolio an asset with significant existing value as well as unlocked growth potential. This acquisition presents us with an opportunity to enhance productivity at Sparrows Point through our high standards of operational performance and will benefit our existing U.S. businesses. We expect to realize synergies in Sparrows Point and with SNA that will fuel increased production and profitability. We remain committed to growth in North America and believe in the long-term promise of the U.S. market; we’re confident that this acquisition will create value for our shareholders while strengthening our U.S. platform as a whole.”

Severstal and the United Steel Workers have agreed to enter into a collective bargaining agreement, reinforcing the Company’s already strong relationship with organized labor.

The acquisition is subject to customary closing conditions, including approval by the United States Department of Justice, and is expected to close in 2Q08.

Merrill Lynch & Co. is acting as exclusive financial advisor to Severstal and rendered a fairness opinion to the Board of Directors regarding this transaction.  Skadden, Arps, Slate, Meagher & Flom LLPis acting as legal counsel to Severstal.