The chairman of Evraz, Russia's biggest steelmaker, believes a merger with No.2 player Severstal would be a good idea, a proposal analysts said was unlikely because major shareholders would not want to surrender control.

I guess that this (merger) would have several advantages, Evraz chairman and 24 percent shareholder Alexander Abramov told the Financial Times on Tuesday, adding the two sides were not in talks. He did not say how a tie-up might take place.

Russia's big steel companies are controlled by oligarchs who created the entities in the tumultuous period following the collapse of the Soviet Union.

Chelsea Football Club owner Roman Abramovich holds 35 percent of Evraz, giving its two core shareholders a combined stake of 59 percent. Alexei Mordashov holds 82 percent of Severstal, which said it did not comment on speculation.

There is no pressure for controlling shareholders to part with control. They have sufficient financial resources to develop as individual companies, ING analyst Maxim Matveev said. The Russian steel landscape has been quite stable for many years, and I do not think that is about to change.

Evraz has been in focus since joining Britain's blue-chip FTSE 100 index this month to expand its investor base and increase liquidity. Fellow precious metals miner Polymetal also joined the index.

Several other Russian groups have signalled similar intentions, including Polyus Gold. Its planned listing is being held back by government approvals in Moscow.

Severstal shares were down 1.3 percent at 10:00 a.m. (British time), underperforming Russia's MICEX, which was up 0.2 percent.

Evraz shares were down 1.9 percent.

Abramov told the FT he would be willing to sell some shares and leave his post as chairman, which the newspaper said would be required to meet FTSE 100 governance standards.


When Russian steel groups make acquisitions they generally look abroad, racking up more than $30 billion debt (19 billion pounds), largely on international M&A deals, prior to the crisis. The recent recovery allowed firms to trim debt and reinstate dividends.

Evraz cut net debt to $6.04 billion at the end of the first half, down 15 percent from the end of 2010.

VTB analysts said last month that was 2.1 times the company's earnings before interest, tax, depreciation and amortisation (EBITDA) for the last 12 months, compared to a 0.7 multiple at Severstal.

Alfa Bank said a merger of Evraz and Severstal would create a group with combined annual steel capacity of more than 30 million tonnes, making it the world's eighth-largest producer.

Evraz's main business is in construction and railway steel, while Severstal has a stronger focus on flat steel sold to the white goods and car sectors.

Troika Dialog analysts said a merger would make little sense for Severstal whose business model is currently coherent and sound (a low-cost steel business with a focus on value-added flat steel products plus 100 percent upstream integration in iron ore and coal). Adding Evraz's Russian and global assets will not create any value.

Evraz's core shareholders may be interested in cashing out, they said.

Evraz said in October said it had ended talks on a sale of its 40 percent indirect stake in Russian coal miner Raspadskaya.

Earlier reports indicated that an 80 percent Raspadskaya stake could fetch $5.3 billion.

(Reporting by Stephen Mangan and Alfred Kueppers; Editing by Douglas Busvine and Dan Lalor)