"China steel maker, General Steel Holdings (NYSE: GSI) is gobbling up another competitor," says Keith Fitz-Gerald, editor of New China Trader and author of the top seller, Fiscal Hangover.
"General Steel announced that it has signed a non-binding Letter of Intent to acquire a 60% controlling interest in Tangshan Baotai Iron and Steel Group Co., Ltd. (Baotai).
"Upon closing the deal, GSI's aggregate production capacity would increase by 23% to 7.8 million metric tons. That would be an incredible boost to GSI's top line. But the benefit doesn't stop with just the increase in aggregate production and top line growth.
"GSI's potential acquisition of Baotai also affords GSI a geographic edge as the Baotai facilities are located just 100 kilometers from the Tangshen port.
"The geographic advantage would give the GSI/Baotai venture access to high-quality imported iron ore at minimal transportation costs.
"It also speaks to one of the reasons we are so keen on the company. GSI's western style holding structure allows them the flexibility to pull off deals like this.
"Other companies using more traditional Chinese operating structures are not only rigid, but completely inflexible when it comes to innovative thinking and results that are immediately acreditive to the bottom line.
"Speaking of which, on November 11, 2009, ChinaDaily reported that China's Ministry of Industry and Information Technology is encouraging six to seven leading steel producers across the country to implement strategic mergers and restructuring of the nations steel sector in an attempt to forge three to five highly production producers with real international competitiveness.
"Much like the Fed-Speak we deal with in this country, this is Beijing-Speak for the central government would really like you to prosper and is prepared to accommodate innovative transactions.
"And that's great for GSI. So if you don't already own GSI, now's a good time to pick up shares or add to existing positions."
Editor's note: Keith's must-read new book on global investing -- Fiscal Hangover -- is now available. You can get a $10 discount on by clicking here.
