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Gerdau Ameristeel to Acquire Chaparral Steel
07/11/2007 - Gerdau Ameristeel signs definitive merger agreement to acquire Chaparral Steel for US$86.00 per share in cash, valuing Chaparral Steel's equity at US$4.22 billion.
Gerdau Ameristeel Corp has signed a definitive merger agreement to acquire Chaparral Steel Co. for US$86.00 per share in cash.
Chaparral Steel’s Board of Directors unanimously approved the transaction, and will recommend to company shareholders that they vote in favor of the offer. The offer price values Chaparral Steel's equity at US$4.22 billion.
"The acquisition of Chaparral Steel Company is consistent with Gerdau Ameristeel's strategy to further diversify its product offering into high value added steel products,” said Mario Longhi, GNA's President and CEO. “This strategic combination is an excellent fit for us and it broadens our product portfolio and gives us a full range of structural steel products. As a premium steel asset, Chaparral brings not only high quality products and assets but also a strong organization with excellent technical capabilities."
"After an extensive review of all options for the company, Chaparral's Board of Directors has determined that this transaction creates substantial value for our stockholders," stated Tommy A. Valenta, Chaparral's President and CEO. "Over the past few years, our people have worked hard to enhance our operations, improve our competitive position, and transform Chaparral into one of the most profitable steel companies in the world."
Following closing of the proposed transaction, Gerdau Ameristeel says it intends to explore the issuance of equity securities, with the goal of achieving a prudent level of capitalization and maintaining a strong balance sheet. The company's majority shareholder, Gerdau SA, has committed to support Gerdau Ameristeel and will subscribe to any equity issuance in order to maintain its current level of equity ownership.
Gerdau Ameristeel says it expects that the combination with Chaparral Steel's operations will generate annual pre-tax operating synergies in excess of $55 million by the end of 2008. The company also expects that the transaction will be slightly dilutive to its 2007 and 2008 earnings per share after considering expected synergies and after taking into effect the contemplated equity issuance.
"This transaction reaffirms our strategy to participate in the global steel consolidation,” said Andre Johannpeter, President and CEO of the Gerdau Group. “As we have indicated previously, Gerdau Ameristeel provides our platform for growth in North America. We have a history of successfully integrating businesses and capturing synergies through the implementation and execution of the Gerdau Business System."
The proposed transaction, which has been unanimously approved by both companies’ Boards of Directors, is also subject to the approval of Chaparral Steel's shareholders and other customary closing conditions, including regulatory approvals
The proposed transaction is expected to close before year-end.
Chaparral Steel, the second-largest producer of structural steel products in North America, is also a major producer of steel bar products. It operates minimills in Midlothian, Texas, and Dinwiddie County, Va. The company has approximately 1400 employees and an annual installed capacity of 2.9 million tonnes.
Gerdau Ameristeel is the second-largest mini-mill steel producer in North America with annual manufacturing capacity of over 9.0 million tons of mill finished steel products. Through its vertically integrated network of 17 mini-mills (including one 50% owned joint venture mini-mill), 17 scrap-recycling facilities and 51 downstream operations, Gerdau Ameristeel serves customers throughout North America. The company's products are generally sold to steel service centers, steel fabricators, or directly to original equipment manufactures for use in a variety of industries.
Gerdau Group is a leading producer of long steel products in the Americas and ranks as the 14th-largest steelmaking company worldwide. It has approximately 35,500 employees and is present in thirteen countries: Argentina, Brazil, Canada, Chile, Colombia, Dominican Republic, India, Mexico, Peru, Spain, the United States, Uruguay and Venezuela. Gerdau Group has an annual installed capacity of 22.9 million tonnes of steel and is one of the largest recyclers in the Americas. With more than 100 years of history, it has taken a path of international growth in line with the steelmaking consolidation process.
J.P. Morgan Securities Inc. is acting as exclusive financial advisor to Gerdau Ameristeel and the Gerdau Group on this transaction and has provided financing commitments of $4.6 billion to Gerdau Ameristeel to complete the transaction. Simpson Thacher and Bartlett LLP and Torys LLP acted as legal advisors for the transaction.
