Consolidation in steel and insurance
This week we have two more examples of how acquisitions in any sector tend to lead to more acquisitions, a buying panic caused by the fear of being left behind. Both deals break new ground in global expansion for the buying company.
Steel
Evraz, Russia's biggest steel company (it also has mining interests) announced it would be controlling interest in South Africa's Highveld Steel and Vanadium Corporation, for around $675 million. Evraz is buying the stake from Anglo-American Mining, the owner of DeBeers and AngloGold Ashanti, and the producer of 76% of the world's platinum, 51% of the gold, and 45% of the diamonds.
Highveld Steel and Vanadium Company is the world's largest miner of vanadium, used in strengthening steel. It also has its own steel mills in Russia.
In addition, Evraz owns iron and coal mines in Russia. Last year it bought controlling interest in an Italian steel firm, Palini e Bertoli as well as Czech steelmaker Vitkovice Steel.
According to a Financial Times article ("Evraz moves for Anglo American's stake in consolidation dash", 6/15/06),
The deal followed Mittal Steel's takeover of Arcelor last month. By creating the world's biggest steel producer, the merger has put pressure on middle ranking steel groups such as Evraz, Severstal, Dofasco and ThyssenKrupp to consolidate.
Insurance
UK insurer Aviva plc announced this week it would acquire US insurer AmerUS, for $2.9 billion. Aviva is the #6 insurance group in the world by its own reckoning, #1 in the UK, and has a strong presence in continental Europe. The company also has a small presence in the US in life insurance and annuities. AmerUS, founded in 1895, is a US leader in its field, having over $24 billion in total assets, again in life insurance and annuities. And that market keeps growing, as retirees move money from 401(k) funds to guaranteed income.
Once again, according to the Wall Street Journal, fear of being left behind is a key motivator. According to the article ("U.K. Insurer Aviva To Buy AmerUS For $2.9 Billion" (6/13/06):
The insurance sector has been a stage for global consolidation during the past few years. Swiss Reinsurance Co. in November acquired General Electric Co.'s insurance business for $6.8 billion. Earlier this year, Old Mutual PLC of South Africa closed a deal to acquire Skandia AB of Sweden, also for $6.8 billion. And in 2004, AXA Financial Inc., a unit of French insurer AXA SA, bought U.S. insurer MONY Group Inc. in a deal valued at $1.5 billion.
And we could name plenty more.
Aviva is itself the result of a major merger. UK insurers CGU and the Norwich Group were merged in 2000 and took the name CGNU. Finally, that ungainly name was rebranded into Aviva, a name then taken by national companies owned by the corporation, including Norwich Union in the UK, Delta Lloyd in the Netherlands, Hibernian in Ireland, and Commercial Union in Poland.
In fact, Aviva gave up an attempt earlier this year to buy the UK's #2 insurer. Prudential plc, unrelated to the US insurer Prudential Financial. The UK company owns Jackson National Life in the US.
