1) Essar Global agreed to buy Canada’s Algoma Steel Inc. for $1.63 billion to gain sheet mills that supply carmakers in North America including General Motors Corp. and Ford Motor Co.
2) The price is 48 percent more than the 20-day average ending Feb. 14 - seven times Algoma's earnings before interest, taxes, depreciation and amortization, or ebitda.
3) The rationale is to move closer to markets for higher-end products while continuing to tap cheaper raw materials such as iron ore in India.
4) The steel cycle is up so making acquisitions at this time becomes easier. Higher prices reduce the payback time for companies.
5) Essar hasn't said how it will finance the Algoma purchase. The Essar Group will get upto $5 billion from selling its stake in Vodafone Essar in the future but it is using it as a stepping stone to get loans to fund expansion of their other businesses
General Electric’s famous Profit Impact of Marketing Strategies suggested that a higher market share translated into higher rate of profit. But with a slowdown and cost cutting among US automakers will Essar’s increased market share increase its rate of profit?
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