China Steel (
The deal will consolidate China Steel's leading position in Taiwan and increase its competitiveness on the world stage.
It will also provide relief to the financially troubled Yieh Loong, the flagship of the second-largest steel group, according to industry sources.
"We are financially tight and the alliance with China Steel will help Yieh Loong's finances," said Clinton Wang (
Yieh Loong plans to complete an offering of 350 million new shares to raise NT$3.5 billion by February, when China Steel will increase its stake to 35 percent, according to Wang Chung-yu (?y棕蟈?, chairman of China Steel.
In addition, Clinton Wang said investors will have more confidence in Yieh Loong and will inject more funding in the company now that China Steel has gained control of the firm. Yieh Loong posted a loss of NT$1 billion in 1998.
When asked why Yieh Loong sold its stake at a price lower than its net value, Yieh Loong's Wang said: "We approached China Steel for the deal first and this tie-up will benefit Yieh Loong's future development. Islin Lin (林義|u) [Yieh Loong's chairman] sold his shares at that price for the benefit of the company."
The 22.5 percent stake China Steel acquired were Lin's shares.
Lin did not attend yesterday's press conference announcing the agreement. According to Clinton Wang, Lin is currently in the US setting up a medical school. Clinton Wang represented Yieh Loong in his place.
As well as stimulating Yieh Loong's development, the alliance is also expected to help it to reduce its production costs, Wang said. Currently Yieh Loong does not produce slab, a semi-finished piece of steel used in the production of hot-rolled coil, so the company has to import slab of different specifications according to customers' demand.
By providing Yieh Loong with low demand slab, China Steel will allow the company to reduce its storage expenses and overhead. Yieh Loong will therefore be able to import just the high demand slab it requires. And it will be able to purchase that slab more easily through China Steel's good connections with foreign firms.
According to an analyst from a securities firm, steel manufacturers such as Yieh Loong that do not produce raw materials are uncompetitive, so they need to find ways to get involved in the production of raw materials.
The alliance will achieve this because China Steel is the most vertically integrated steel manufacturer in Taiwan; yesterday's deal will give Yieh Loong access to many of the raw materials it needs.
According to China Steel's chairman, the company will achieve economies of scale as well as increase its market share and product ranges under the alliance.
"Facing Taiwan's entry into the WTO and a more competitive market, Taiwan's steel industry needs consolidation," the chairman said.
According to another steel analyst, the alliance will give China Steel greater power to control prices.
Currently, China Steel, Yieh Loong and An Feng (
China Steel and Yieh Loong together will have a 80 percent market share of the market.
China Steel and Yieh Loong were not the first two companies to form a major steel alliance, as many other large international firms have merged recently in order to increase their productivity.
For example, there was British Steel's recent merger with its Dutch counterpart Koninklijke Hoogovens, and the takeover of Mannesmann Handel AG by Thyssen Handelsunion AG, a division of Thyssen Krupp AG.
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