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Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Baoshan Iron & Steel Co A / Equity Bottom-Up

Baosteel has announced that it will acquire Wuhan Iron &amp; Steel Co, or WISCO, through a share-swap exercise. Under the plan, Baoshan will issue 5.65 billion stocks at CNY 4.60 per share in exchange for WISCO shares, indicating a share swap ratio of 0.56/1. The transaction is subjected to approvals from minority shareholders and the respective authorities. Meanwhile, trading of Baosteel will remain suspended, as the Shanghai Stock Exchange is still reviewing the merger plan. We maintain our earnings forecasts and fair value estimate, pending the completion of the deal. Meanwhile, our no-moat rating is unchanged, as we think the combined company will still generate returns below its weighted average cost of capital in the long run amid the challenging operating environment in the steel sector.Analyst: Phillip Zhong

Baosteel has announced that it will acquire Wuhan Iron &amp; Steel Co, or WISCO, through a share-swap exercise. Under the plan, Baoshan will issue 5.65 billion stocks at CNY 4.60 per share in exchange for WISCO shares, indicating a share swap ratio of 0.56/1. The transaction is subjected to approvals from minority shareholders and the respective authorities. Meanwhile, trading of Baosteel will remain suspended, as the Shanghai Stock Exchange is still reviewing the merger plan. We maintain our earnings forecasts and fair value estimate, pending the completion of the deal. Meanwhile, our no-moat rating is unchanged, as we think the combined company will still generate returns below its weighted average cost of capital in the long run amid the challenging operating environment in the steel sector.Analyst: Phillip Zhong

Baosteel's Acquisition Plan Earnings-Dilutive in the Near Term