Scheme of restructuring of Baosteel Co., Ltd. (600019,SH)and WISCO (600005，SH)was formally released.
On September 22nd, two companies of Baosteel Co., Ltd. and WISCO simultaneously released Consolidation by Merger Report (hereinafter referred to as Report), Baosteel Co., Ltd. issued A-share for all share-exchange shareholders of WISCO, consolidated by merger through share exchange with WISCO. Baosteel Co., Ltd. was the combining party, i.e. surviving party of this consolidation, and WISCO was the combined party, i.e. non-surviving party of this consolidation.
The listed company after consolidation would become the No.3 “Big Mac”in the list of production volume of crude steel among global iron and steel listed companies, insiders of the industry stated, under the wave of this new round iron and steel industry merger and restructuring aimed at supply side structural reform and decapacity and enhancement of industrial concentration ratio, Baosteel Co., Ltd. and WISCO which both belonged to central SOEs would display demonstration effects, and this event could be said to be the milestone in the development history of Chinese iron and steel industry.
Meanwhile, this restructuring would optimize resource allocation of the two listed iron and steel companies, display synergy effects, speed up the fostering of world-class iron and steel listed companies and enhance international competitiveness of Chinese iron and steel industry.
Birth of “Big Mac” Ranked Top 3 Globally
According to Report, share-exchange price of Baosteel Co., Ltd. and WISCO should set the share transaction average price of twenty transaction days before the board decision declaration date for deliberation of listed companies on this share-exchange consolidation by merge issue as market reference price, and set the pricing principle of not lower than 90% of market reference price, the share-exchange pricing was confirmed as: Baosteel Co., Ltd. 4.60 yuan/share, WISCO 2.58 yuan/share. Share-exchange ratio of WISCO and Baosteel Co., Ltd. was confirmed as 1:0.56 based on the above-mentioned share-exchange prices, i.e. one share of WISCO could be changed with 0.56 share of Baosteel Co., Ltd..
Meanwhile, Baosteel Co., Ltd. would consolidate by merger with WISCO, the existing all assets, debts, businesses, personnel, contracts, qualifications and all other rights and obligations of WISCO would be undertaken and inherited by WISCO, and since settlement date, 100% stock rights of WISCO would be controlled by Baosteel Co., Ltd..
Baosteel Co., Ltd. was China’s most modernized ultra-large iron and steel integrated complex, was core member of Fortune Global 500 Baosteel Group, and global leading world-class iron and steel integrated complex, specializing in production of iron and steel fine products with high technical content and high added-value; and WISCO owned integral iron and steel production technical processes of world’s current advanced level of iron-making, steel-making, steel-rolling etc., products of steel materials totaled seven big categories and over 500 varieties.
On reaching the transaction, strength of the listed company after consolidation would be greatly enhanced, and the company would become the irrefutable “Big Mac”of Chinese iron and steel industry no matter in revenues or in production volume. On level of listed companies, the listed company after consolidation would be ranked the third in crude steel production volume among global listed iron and steel enterprises; and on level of group, its production scale would exceed Hebei Steel, and be ranked the second globally only after European iron and steel giant Arcelor Mittal.
Leading the Wave of A New Round Industrial Restructuring
Currently, Chinese iron and steel industry faced the dilemma of extreme redundancy of production capacity and market oversupply.
Data revealed, in 2015, crude steel production volume of Chinese iron and steel industry was 804 million tons, taking up 49.5% of crude steel production volume of global iron and steel industry, and production capacity utilization rate was only 67%. In recent years, consumption volume of iron and steel displayed the trend of gradually decrease year by year, and the consumption of steel materials would enter the declining channel in general.
Some views even believed, too low production capacity utilization rate and serious imbalance between supply and demand would become the prominent problems faced by the development of Chinese iron and steel industry in a very long period of time in the future. Therefore, work of defusing overcapacity in iron and steel industry had become the primary task and crucial battle for coming out of poverty, adjustments, transformation and upgrading of iron and steel industry.
Meanwhile, the Chinese iron and steel industry was too dispersed, which also influenced policy effectiveness of overcapacity diffusion. In 2015, market share of the top ten enterprises of Chinese iron and steel industry fell back to 34.2%, and industry concentration ratio decreased to the lowest point in recent ten years.
Because of these, the nation had been actively advocating supply side structural reform on policy level, and explicitly encouraged iron and steel enterprises to diffuse overcapacity through merger and restructuring and push forward “decapacity”of the industry.
In March 2015, Ministry of Industry and Information Technology publicly solicited opinions for Policies on Adjustment of Iron and Steel Industry, and proposed further organization of structural optimization and adjustment of iron and steel industry, fastening up merger and restructuring, and till 2025, the proportion of crude steel production volume of top ten steel enterprises should take up no less than 60% of the whole nation, and three to five ultra-large iron and steel groups with relatively strong competitiveness in the globe would be formed. At the end of 2015, Central Economic Work Conference proposed to exert efforts on pushing forward supply side structural reform, make “decapacity” one of the five tasks of national economic work in 2016, and required reducing crude steel production capacity of the whole nation for 100-150 million tons in five years starting from 2016.
It was under such grand background that the restructuring of the two companies would become benchmark of consolidation of the iron and steel industry and display modeling effects, meanwhile would also be placed on with greater hopes.
After consolidation of the two parties, their homogeneous production lines would be optimized, production capacity structure be adjusted to reduce overlapping investment of production capacity, revitalize remnant production capacity and assets, ceaselessly expand market shares of exclusive products and products with unique advantages; and each base corresponded with competitive surrounding markets, implementation of decapacity of iron and steel and supply side reform would be practiced with market mechanism.
Synergy Effects after Consolidation
Announcement revealed, after merger, Baosteel Co., Ltd. and WISCO would optimize resource allocation of the two iron and steel listed companies, and push forward the enhancement of quality and improvement of efficiency of consolidated listed company. The two parties would display synergy effects in all aspects of location niche, R&D, purchase, production, marketing and sales, products, technical innovation, enterprise culture etc..
Currently, production of Baosteel Co., Ltd. was mainly concentrated in three production bases of Shanghai Baoshan, Nanjing Meishan and Zhanjiang Dongshan, and the production of WISCO was mainly concentrated in Wuhan Qingshan.
After consolidation of Baosteel Co., Ltd. and WISCO, the listed company would plan as a whole for the layout of the four iron and steel production bases, fully integrate strategic locations along the seas and the rivers in domestic China, integrate location advantages of the iron and steel main businesses with multiple points of view and systematic manner, reasonably divide the labor and arrange the layout of surrounding markets, orderly align with Chinese and global customers, and radiate the twenty-first century Maritime Silk Road economic zone. The two parties would adopt intensified deployment and allocation in aspects of raw materials and end product transportation and warehouse etc. through layout optimization of production bases and realize cost reduction and effectiveness enhancement.
In aspect of R&D, both Baosteel Co., Ltd. and WISCO owned R&D resources of tremendous strength, list company after consolidation would integrate R&D resources, concentrate strength of advantages, share service platforms and enhance R&D efficiency.
In aspect of purchase collaboration, the listed company after consolidation would benefit from the expansion of purchase scope of raw materials, materials, equipment and spare parts, optimization of logistic distribution and warehouse management and sharing of fine reputation with suppliers to reduce enterprise comprehensive purchase costs.
For Chinese iron and steel enterprises, besides the extreme redundancy of production capacity, shortcomings of lacking competitiveness in high-end areas also existed.
In this aspect, Baosteel Co., Ltd. and WISCO had stepped ahead in the market in area of high-end products, both parties were equipped with quite strong thin plate manufacturing capacity. Besides serial products of plate materials, Baosteel had advantages in steel pipes, and WISCO in aspects of heavy rails and bridge structural steel. Through consolidation and restructuring, the two parties could swiftly transplant and integrate respective fruits in areas of automotive sheets, silicon steel, tin (chrome) plating boards, engineering steel, high-grade thin plates etc., enhance fast iron and steel manufacturing capacity, strengthen advantageous positions of core and important strategic products of the two parties, undertake heavy tasks of R&D of high-end products, and build full-variety steel material manufacturing giant with optimized production capacity structure.
In aspect of collaboration in marketing and sales, the consolidated listed subject would integrate marketing and sales service system of the two parties, and build industry-leading advanced service advantages. In aspect of channel integration, the two parties would implement strategy of “one body two wings” through third-party service platform Ouyeel and build to form most competitive sharing ecosphere of iron and steel service.
Investment Spotlights after Consolidation
Report revealed, after alliance between the strong enterprises, the listed company would become global most competitive iron and steel enterprise, realize the dream of serving the country and strengthening the country with steel, and the listed company after consolidation would be ranked the third in crude steel production volume among global listed iron and steel enterprises, ranked the third in production volume in the market of global automotive sheets and ranked the first in production volume in global oriented silicon steel market.
Besides, listed company after consolidation would embrace world’s leading R&D and technical advantages, further integrate advanced technologies of both sides, speed up the realization of breakthrough in core technologies, further enhance innovation capacity, and overall technologies of the listed company after consolidation would reach world’s advanced level, with part of the technologies reaching world’s leading level; it would be equipped with extreme competitive cost advantages, own complete cost control system, and ensure the company would have outstanding competitive advantages at cost end; it would have industrial leading advanced service advantages with supply capacity for full range of varieties, full-scale marketing and sales channel coverage capacity, and full-process customer service system.
Meanwhile, consolidation and restructuring of the two parties would greatly enhance international competitiveness and influence of Chinese iron and steel industry, further enhance the recognition and acceptance of technical levels and production equipment of Chinese iron and steel industry by international community, and would provide important support for participation of Chinese steel industry in “one belt one road” construction, international production capacity cooperation, and fastening up the steps of “going out”of Chinese iron and steel enterprises.
Cultivate A Listed Company with the Greatest Investment Value
Becoming iron and steel “Big Mac” ranked among global top 3, leading the wave of integration of iron and steel industry, making it benchmark of deepening SOE reform and implementing supply side reform, these were not the whole story of this restructure of the century.
According to planning, the listed company after consolidation would set its strategic target as “becoming the most competitive iron and steel enterprise in the globe, and listed company with the greatest investment value”, construct itself into the world’s first-class iron and steel listed company representing the highest technical and power levels of Chinese iron and steel industry, possessing iron and steel technical independent intellectual property rights, and owning power of discourse and strong competitiveness in international iron and steel industry.
To accomplish this strategic target, the listed company again proposed the development strategy of sticking to “one body two wings”: setting iron and steel as the “principal part”, strengthening comprehensive competitiveness, i.e. five core competence of cost reform, technical leadership, one step ahead in service, intelligent manufacture, and city steel plant; and setting intelligent manufacture and Ouyeel iron and steel ecosphere platform service as the “two wings” to build the new development momentum of the company.
Meanwhile, listed company after consolidation planned to use around three years’ time to deepen the pushing forward of restructuring and integration of main business sectors and regional markets. Through restructuring, it planned to gradually establish new type management system of unified R&D, unified sales and unified purchase, fully tap the effects of synergy, and optimize resource allocation in an all around way.
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