Nucor (NUE) Buying Gallatin Steel in $770M Deal
Nucor Corporation (NUE) has agreed to buy Gallatin Steel Company from global steel giant ArcelorMittal (MT) and Brazilian steel maker Gerdau (GGB) for roughly $770 million in cash. The effective purchase price for Nucor is around $630 million, barring the net present value of the expected tax benefits. Nucor’s shares rose nearly 3% in the trading session following the announcement.
Both ArcelorMittal and Gerdau own a 50% stake in Gallatin Steel – a flat-rolled products mill based in Gallatin County, KY, with an annual capacity of roughly 1.8 million tons. The mill melts scrap, pig iron and hot briquetted iron from a number of sources and processes the material to make flat rolled steel. Its assets make a vast spectrum of steels from low to high carbon grades.
The divestment is in tandem with ArcelorMittal’s strategy to selectively dispose its non-core assets. On the other hand, the sale will enable Gerdau to focus on its core assets in North America.
The transaction, which is subject to necessary regulatory clearances and other closing conditions, is expected to close by end-2014. Nucor expects to finance the takeover with available cash and commercial paper borrowings. The company does not expect to issue long-term debt or equity given its strong balance sheet and healthy cash flow generation.
The acquisition of Gallatin Steel is in sync with Nucor's strategy for profitable growth. The buyout is expected to reinforce the company’s foothold in the key Midwest region and allow it to better serve its flat-rolled customers in the growing pipe and tube segment. The addition of Gallatin Steel is expected to enhance Nucor's total flat-rolled product annual capacity by 16% to around 13 million tons.
The deal is expected to be immediately accretive to Nucor's cash flow and earnings and create significant value for its shareholders.
Nucor, a Zacks Rank #3 (Hold) stock, is progressing well with its key projects that are expected to boost its earnings power over the long-term. Moreover, the company is seeing strength across end markets such as automotive, energy, heavy equipment and general manufacturing. Demand across these end-markets is healthy, lending support to the company’s top line.
However, Nucor, like other U.S. steel makers including U.S. Steel (X), remains plagued by surging domestic steel imports. Despite the U.S. steel industry’s low capacity utilization, imports continue to flow into the domestic market due to foreign producers’ overcapacity.
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