US embassy cable - 04ANKARA6963

UNCLAS ANKARA 006963 
 
SIPDIS 
 
SENSITIVE 
 
USDOC FOR ADVOCACY CENTER 
 
E.O. 12958: N/A 
TAGS: EINV, BEXP, EIND, TU 
SUBJECT:  TURKEY: US STEEL INTERESTED IN PRIVATIZATION 
 
Ref:  Ankara 3677 
 
SENSITIVE BUT UNCLASSIFIED.  BUSINESS INFORMATION. 
 
1.  (SBU)  Three Pittsburgh based US Steel executives called 
on Ambassador Edelman December 14 to discuss United States 
Steel's interest in purchasing the Turkish government's 46% 
stake in Erdemir, Turkey's largest steel company.  Led by 
Senior VP John Connelly, the group noted that the pending 
sale, which the Turkish government now says will begin in 
the first quarter of 2005, had attracted significant 
interest from US Steel and other global steel companies, 
including French-Belgian Arcelor and the Indian-UK Lakhsmi 
group, in the context of the ongoing consolidation of the 
global steel industry.  US Steel has longstanding business 
relationships with Erdemir and believes its acquisition 
would create synergies with US Steel facilities in Slovakia 
and Serbia. 
 
2.  (SBU)  The executives highlighted the success of US 
Steel's acquisitions of steel plants in Slovakia and Serbia 
and the attention the company had paid to working with the 
government and labor unions.  These plants have generated 
both new production and employment.  US Steel has retained 
the Istanbul offices of Goldman Sachs and Raymond James as 
financial consultants as well as a local law firm.  The 
group met Finance Minister Unakitan December 13 and is 
meeting with Privatization Authority chief Metin Kilci 
December 14.  The executives said that they would want to 
purchase a controlling share in the company (which is also 
traded on the Istanbul stock exchange) and were concerned 
about the potential scope of any "golden share" retained by 
the government. 
 
3.  (SBU)  Comment:  A rough estimate of the dollar size of 
the investment was $2 billion, which would make an important 
contribution to the Turkish economy -- especially given the 
paltry FDI inflows Turkey currently receives.  It would also 
be an important asset in the U.S.-Turkey economic 
relationship.  The Ambassador cautioned the executives that 
the company should go into this process with its eyes open 
to the pitfalls of Turkey's opaque legal and regulatory 
systems, which have plagued some other U.S. investors. 
There will also be political sensitivity on both the right 
and left of Turkey's political spectrum to the acquisition 
of what is seen as a successful Turkish company by a foreign 
firm.  (Erdemir earned a $260 million profit last year -- 
reftel describes Econoff's visit to Erdemir and notes the 
company's historical ties to the U.S.)  The US Steel 
executives expected that their biggest competitor would be 
Arcelor, which would no doubt attempt to leverage Turkey's 
expected EU accession process.  US Steel will file the 
standard advocacy request forms with the Department of 
Commerce. 
EDELMAN