Venezuela, Ternium Agree on $1.97 Billion for Sidor (Update2)

By Andres R. Martinez and Daniel Cancel

May 7 (Bloomberg) -- Ternium SA, Latin America’s second- largest steelmaker, agreed to sell its Sidor unit to the Venezuelan government for $1.97 billion, ending a yearlong price dispute. The stock rose the most in more than three years.

The government holding company, Corp. Venezolana de Guayana, or CVG, paid $400 million in cash today for Ternium’s 59.7 percent stake in Sidor, the Luxembourg-based company said today in a statement. CVG said it will pay the rest in two separate payments.

Venezuelan President Hugo Chavez announced the steel mill’s nationalization in April 2008 to help boost control over the economy amid record oil prices. Ternium reportedly sought $4 billion for its Sidor stake, according to Argentinean press reports. Chavez offered $800 million after seizing the company.

“If they got something closer to $2 billion then that is a good deal,” Bill Selesky, a New York-based analyst at Argus Research in New York, said in an interview. “That was a big disparity. The only thing you would have to worry about is if the Venezuelan government agrees to its end of the deal.”

Ternium rose $4.47, or 43 percent, to $14.98 as of 12:55 p.m. in New York Stock Exchange composite trading.

Ternium bought Sidor, the South American country’s sole maker of flat-steel products, for $1.79 billion in 1997. Since the privatization, the company boosted output, investment and exports while labor strikes and government threats became increasingly common during the past three years.

Chavez Takeover

In 2007, Chavez threatened to take over Sidor because he said the company refused to supply the local market and operated as a monopoly. Ternium initially dodged nationalization by promising to sell more discounted steel in Venezuela.

Venezuela accused Ternium of mistreating its employees and removing profit from the South American country. Sidor’s union repeatedly called on the government to nationalize the steelmaker.

On April 9, 2008, after months of work stoppages to protest contract talks for Sidor’s 4,000 unionized workers, Chavez ordered the company be nationalized when negotiations stalled.

The Venezuelan government accused the company of “slave- like” conditions for its workers and of owing as much as $700 million dollars in taxes.

Chavez softened his stance on Ternium in the second half of 2008. He said he expected a “friendly agreement,” and that he hoped the company, run by Paolo Rocca, would continue to work in Venezuela. Chavez met with Argentine President Cristina Fernandez in late June to discuss compensation negotiations.

Ternium Production

In 2007, Ternium said it produced 4.3 million metric tons of crude steel and sales totaled $2.4 billion. Domestic sales rose 11 percent to 2.5 million metric tons of liquid steel from the previous year.

Crude oil for June delivery rose $1.11, or 2 percent, to $57.45 a barrel at 11:40 a.m. on the New York Mercantile Exchange. Futures touched $58.57, the highest intraday price since Nov. 17. Prices have gained 8 percent this week.

Porto Alegre, Brazil-based Gerdau SA is Latin America’s largest steelmaker.

With assistance by Matthew Craze in Santiago.--Editors: Robin Saponar, Jessica Brice

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.

Last Updated: May 7, 2009 13:09 EDT