U. S. Steel to Acquire Stelco
08/27/2007 - Amid much market speculation, U. S. Steel announces plans to acquire Stelco for $38.50 (Canadian) per share for an aggregate value of approximately $1.1 billion (U.S.) based on approximately 30 million fully diluted shares.
United States Steel Corp. and Stelco Inc. have entered into a definitive agreement pursuant to which U. S. Steel will acquire Stelco for $38.50 (Canadian) in cash per share.
Shareholders owning more than 76% of Stelco's outstanding shares, including Tricap Management Limited, Sunrise Partners Limited Partnership, Appaloosa Management L.P., and Rodney Mott, the CEO of Stelco, have entered into agreements with U. S. Steel irrevocably committing to support the transaction.
U. S. Steel expects the acquisition of Stelco to strengthen its position as a premier supplier of flat-rolled steel products to the North American market. Stelco's Lake Erie Works is one of the most modern integrated steel plant in North America, and the slabs produced at Stelco's Lake Erie and Hamilton Works will help U. S. Steel expand its semi-finished steel supply chain capabilities to support finishing facilities for both flat-rolled and tubular products. Stelco also owns several joint-venture interests including iron ore operations in the United States and Canada, and a 60% interest in Z-Line, a world-class hot-dip automotive-quality galvanizing line. After the acquisition, U. S. Steel will have annual raw steel capability of approximately 33 million net tons.
Under terms of the definitive agreement, U. S. Steel will acquire all of the outstanding shares for $38.50 (Canadian) for an aggregate value of approximately $1.1 billion (U.S.) based on approximately 30 million fully diluted shares. As of June 30, 2007, Stelco had approximately $760 million (U.S.) of net debt on its balance sheet. U. S. Steel says it intends to pay for the acquisition and retire the majority of Stelco's existing debt through a combination of cash on hand, utilization of existing liquidity facilities, and proceeds under two new fully committed senior credit facilities totaling $900 million and underwritten by J. P. Morgan Securities Inc. and Scotia Capital. U. S. Steel expects that the acquisition of Stelco will result in annualized pre-tax synergies of more than $100 million (U.S.) by the end of 2008, and that the transaction will be accretive to earnings per share in 2008, excluding synergies and the impact of purchase accounting adjustments.
"Our acquisition of Stelco is another example of how we are building value for our stakeholders," said John P. Surma, U. S. Steel Chairman and CEO. "From the increased utilization of our Minnesota Ore Operations through the conversion of slabs and hot bands produced at Stelco by our other finishing facilities, this transaction optimizes our operations and allows us to better serve our customers. With major facilities located on both sides of the Great Lakes, this acquisition will significantly increase our ability to respond to market demands and our customers' needs.
Surma added, "We believe that our greatest strength is our people, and Stelco has an exceptional group of employees. We look forward to building on the unique talents, commitment and expertise they will bring to the U. S. Steel family and having them join our tradition and culture as good corporate citizens focused on employee safety and committed to environmental stewardship."
Rodney Mott, Stelco's President and CEO commented, "The fit with U. S. Steel is excellent. This is an outstanding deal for Stelco's owners, employees, customers, suppliers, and communities. Our goal through the Stelco restructuring process was to re-establish Stelco as a competitive steel company and position it to be part of a larger, stronger, company that can provide additional security for our employees and their communities. Our transaction with U. S. Steel represents the successful conclusion of an exhaustive review of opportunities for Stelco. U. S. Steel brings the financial strength, operating experience and advanced research and technology capability that are critical for the continued success of the Stelco facilities."
U. S. Steel has also made commitments to the Province of Ontario with regard to Stelco's main pension plans and operations in the Province. As part of that commitment, U. S. Steel will make significant capital expenditures at the Hamilton and Lake Erie facilities, and will endow a Priority Chair in the Department of Materials Science and Engineering at McMaster University to facilitate the continuing development of steelmaking technology in Ontario. U. S. Steel is guaranteeing Stelco's pension funding obligations under a pension agreement entered into by Stelco and the Province in 2006, and is also making a voluntary contribution of approximately $31 million (U.S.) in the aggregate to Stelco's main pension plans at the closing of the transaction. In connection with these commitments, the 2006 pension agreements are being amended to reflect the acquisition of Stelco by U. S. Steel.
The acquisition will be accomplished as a Plan of Arrangement under Canadian law. The acquisition is subject to review by U.S. and Canadian regulatory authorities and other customary conditions, and is expected to close before the end of 2007.
