Largest global steelmaker ArcelorMittal (MT) said Wednesday that it's going ahead with a spin-off of its stainless steel division, planned for 2011, in a move aimed at capturing its growth potential.

The move could also spur consolidation in the industry, which in Europe is struggling with overcapacity and rising imports, analysts said. ArcelorMittal also previously said in a stainless steel presentation that overcapacity remains a global problem and the industry needs to consolidate.

ArcelorMittal said it expects the spin-off to result in a non-cash impairment charge of about $800 million.

Following the spin-off, the stainless steel business will have around $1 billion of net financial debt, a combination of existing ArcelorMittal debt transferring with the stainless steel business and new debt raised by this business.

"Subject to shareholder approval, shares in the stainless steel business will be distributed to shareholders in the first quarter of 2011," the company said.

In 2009, ArcelorMittal's stainless steel division posted $258 million earnings before interest, taxation, depreciation and amortization, or Ebitda, down from $934 million in 2008. On a five-year average, Ebitda was $760 million, accounting for 5% of total company Ebitda over the same period.

ArcelorMittal has 2.5-million-tons of stainless steel capacity in Europe and Brazil. In 2009, it shipped 1.45 million tons of stainless, down from 1.95 million tons in 2008.

Stainless steel business shares will be listed on Euronext Paris, Amsterdam and in Luxembourg. In the U.S., they will trade on the over-the-counter market in the form of NY Registry Shares.

A prospectus will be released later in December.

"This might trigger some consolidation necessary because of the overcapacity," said Hermann Reith, a steel analyst at BHF Bank. "It makes it possible for an easier merger."

Reith said he wouldn't be surprised if the company considers a merger with the likes of Finnish stainless steel producer Outokumpu Oyj (OUT1V.HE) or Spanish company Acerinox SA (ACX.MC).

While the stainless sector is lagging right now, ArcelorMittal said recently that its long-term prospects are good. Global stainless steel demand should grow 8% "long term" with European demand returning to pre-2008-crisis levels by 2014, it said.

The steelmaker said it expects global demand to total around 25 million tons in 2014, up from around 18 million tons forecast for 2010. The company forecasts 37% of stainless steel demand to come from China in 2014, 31% from the rest of the emerging markets and 32% from the developed world.

-By Devon Maylie, Dow Jones Newswires; +44 20 7842 9483; devon.maylie@dowjones.com
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