Reuters - POSCO Co. Ltd., the world's fifth-largest steel maker, is looking to buy an Asian steel maker as it fights for survival in the global market after the mega-merger of Mittal Steel and Arcelor.
The formation of Arcelor Mittal, a giant capable of producing more than 100 million tonnes of steel a year, has spurred major steel makers to bulk up in defence. POSCO also faces challenges from rapidly growing Chinese producers.
"In line with the M&A trend in the global steel industry, we are thinking of embarking on overseas M&As," POSCO Chief Executive Lee Ku-taek was quoted as saying by a spokesman.
"We're looking at a steel maker in Asia including China. We are closely studying a specific target and timing."
Analysts welcomed POSCO's plan, saying an acquisition would strengthen the company's bargaining power in the global steel marketplace.
"The first target would be a Chinese or Indian steel maker. POSCO has plenty of cash to buy it," said Kim Kyung-joong, an analyst at Samsung Securities.
POSCO, which is estimated to have 1.5 trillion won ($1.57 billion) in cash, has been at the centre of various expansion rumours inside and outside the country as it seeks growth opportunities.
Purchasing foreign companies would also help to protect POSCO protect itself against hostile takeover bids.
"POSCO would be difficult to become a target of takeover of big steel companies like Mittal if POSCO's volume gets bigger with an M&A," Kim said.
Foreign investors own more than 60 percent of POSCO, leaving it more vulnerable to hostile takeover bids.
The South Korean steel maker has already expanded capacity in India and is also seeking to expand ties with Nippon Steel Corp. by increasing cross-shareholdings in each other.
POSCO officials have been stressing the need for global expansions in a very competitive market.
"We need to go outside for survival in the current market situation," Park Ki-hong, POSCO's vice president, said in a seminar last week.
"The steel industry has reached its limit for growth in the domestic market, and the world steel market consolidation will accelerate. Global expansion, including M&As, could be the answer."
POSCO has been linked to M&A talk involving Daewoo Shipbuilding and Marine Engineering Co., Dongbu Steel Co. Ltd. and China's Taigang Stainless Steel Co. Ltd.
Shares of POSCO rose 0.42 percent to 240,500 won by 0527 GMT, compared with a 0.01 percent fall in the KOSPI.