Open / Close Advertisement

Novolipetsk Steel to Acquire JMC for $3.53 Billion

08/14/2008 - Russian steel producer Novolipetsk Steel signs definitive agreement to acquire U.S. steel pipe and tube manufacturer John Maneely Co. for US$3.53 billion on a debt-free, cash-free basis.

Leading Russian steel producer Novolipetsk Steel (NLMK) has signed a definitive agreement to acquire U.S.-based steel pipe and tube manufacturer John Maneely Co. (JMC) for US$3.53 billion. NLMK will acquire the company from a shareholder group including global private equity firm The Carlyle Group and the Zekelman family on a debt-free, cash-free basis.
 
JMC is the largest independent tubular manufacturer in North America, with the most diverse product platform in the North American pipe and tube industry. Through its Wheatland and Atlas Tube divisions, it maintains a leading market position in North America for each of its three core product categories: Hollow Structural Sections (HSS), standard pipe, and electrical conduit. During Carlyle’s ownership, JMC’s sales increased by US$800 million, a 36% rise, from US$2.2 billion in fiscal 2006 to an estimated US$3 billion in fiscal 2008.
 
Originally formed in December 2006 through the combination of John Maneely Co. and Atlas Tube, Beachwood, Ohio-based JMC now operates eleven plants in five U.S. states and one Canadian province with a total annual; production capacity of more than 3 million tons of steel pipe and tube. In the twelve months ended June 30, 2008, JMC shipped 2.1 million tons of pipe and generated revenue of US$2.4 billion and EBITDA of US$485 million.
 
According to NLMK, its acquisition of JMC fits the company’s stated strategy of portfolio diversification and downstream integration in the core markets of the company. The acquisition will also strengthen NLMK’s position in North America, as well as providing an entry point into an important and high-margin end market.
 
NLMK already operates two manufacturing facilities in the U.S. through its joint venture with Duferco Group: Duferco Farrell Corp. and Sharon Coating, LLC. Duferco Farrell is currently the key supplier of hot rolled coils (HRC) to JMC, specifically supplying to JMC’s Wheatland division, which is located near Duferco Farrell. NLMK anticipates synergies of an estimated US$35 million per annum from the vertical integration of its steel assets in North America with JMC’s low-cost processing capabilities.
 
“We are delighted to have secured an entry into the highly attractive U.S. pipe and tube market,” said NLMK Chairman Vladimir Lisin, “and we are confident that the incorporation of JMC’s quality assets into the NLMK group will prove to be a highly attractive investment for NLMK’s shareholders, as well as a beneficial development for JMC’s customers and employees.”
 
Tom Conway, International Vice President (Administration) USW, noted that “the United Steelworkers has had long-standing productive relationships with both companies. We look forward to working with the new owners.”
 
NLMK will finance the transaction from available bank commitments, including the recently established US$1.6-billion Pre Export Finance (PXF) facility and a US$2.0-billion bridge commitment provided by Merrill Lynch, Deutsche Bank and Societe Generale. Subject to customary regulatory approvals, the transaction is expected to close in the fourth quarter of 2008.
 
Merrill Lynch is the exclusive financial advisor and Debevoise & Plimpton is the legal counsel to NLMK. JP Morgan, Goldman Sachs and GMP Securities provided financial advice to JMC and Latham & Watkins is the legal counsel.