SYDNEY/SEOUL (Reuters) - British consortium GFG Alliance said on Wednesday it had signed a binding agreement to acquire deeply indebted Australian steel company Arrium Ltd (ARI.AX), trumping a South Korean group backed by steel giant Posco (005490.KS).
The British group plans to modernize the aging steelworks, together with Arrium's mining and steel distribution businesses, after it collapsed last year following a downturn in steel and iron ore markets.
"We aim to leverage the advantages of integration across the value chain, from raw materials and metal production to high-end engineered products," Sanjeev Gupta, executive chairman of industrial turnaround company Liberty House, said in an email to Reuters.
Liberty House operates together with energy and commodities business SIMEC under the $9.4 billion Gupta Family Group (GFG) Alliance.
The agreement follows a competitive bidding process that saw a Seoul-based private equity syndicate led by Newlake Alliance and JB Asset Management chosen on June 15 as the preferred bidder, only to have GFG return with a revised offer.
Mark Mentha, the head of financial administration company KordaMentha, working on behalf of creditors owed more than $2 billion, said GFG Alliance had submitted a modified offer for the Arrium businesses on Tuesday night.
"Taking all factors into consideration, including the timeframes required to complete a sale, KordaMentha and our sale advisers Morgan Stanley decided that GFG was an option superior to the conditional offer of the Korean alliance," Mentha said.
"GFG provided a quicker path to completion in August. The Korean bidders needed more time than that," a spokesman for KordaMentha told Reuters separately.
The Korean bid also attached more conditions, including the need to obtain A$400 million ($303.8 million), potentially from the Australian government, to keep the existing steel plant operating during the modernization work.
"GFG's plan was seen as cleaner, with less conditions," the spokesman added.
The sale is subject to approval by Arrium's committee of creditors, which meets next week, Mentha said.
The South Korean consortium backed by POSCO, however, was still interested in buying Arrium, a Newlake official told Reuters, declining to comment on whether it would sweeten the offer, or take legal action against the decision.
"We are very surprised by and disappointed with the decision," the source with direct knowledge of the matter said, adding that his group was told of the decision only this morning.
"We made a superior proposal with competitive bid price and sustainable long-term post-acquisition plans. We are not sure whether the seller's decision fully reflects the best interests of all involved stakeholders, including the employees and regional economies," said the source, who declined to be identified because of the sensitivity of the matter.
He said its plan to introduce POSCO's Finex steelmaking technology would enable Whyalla Steelworks to post an annual profit of A$100 million to A$200 million for the next 30 years, creating jobs and reviving the local economy. The Finex steelmaking technology helps cut costs and emissions.
Arrium collapsed in April 2016 with A$2.8 billion ($2.13 billion) in debt after creditors rejected a $927 million bailout proposal by private equity group GSO Capital Partners that would have paid no more than 55 cents on the dollar on their claims.
A purchase price was not disclosed.
However, both bidders indicated during the sales process that they were prepared to spend more than A$1 billion upgrading Arrium's Whyalla steelworks in South Australia state and on its mini-mills, steel distribution and iron ore mining divisions.
Australian treasurer Scott Morrison said he expected to clear the transaction with the federal government's Foreign Investment Review Board later on Wednesday.
Editing by Richard Pullin and Jacqueline Wong