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Steelmaker Eyes Deals Greater Than $500 Million to ‘Move Needle’

Joe Deaux
Steelmaker Eyes Deals Greater Than $500 Million to ‘Move Needle’

(Bloomberg) -- It would probably take more than half a billion dollars to move the needle on acquisitions for Stelco Holdings Inc.'s executive chairman, as he scouts the market for targets newly energized by the U.S. decision to lift steel tariffs on Canada and Mexico.

Alan Kestenbaum said the company is targeting assets in North America that will complement the profile of the Hamiliton, Ontario-based integrated steelmaker, currently riding a wave of demand from the automotive and construction sectors. This could include a foray into the scrap-centric mini mills that are benefiting companies such as Nucor Corp. and Steel Dynamics Inc. -- at the right price, he said.

“We’re limitless, we have various debt tools, we have cash and equity,” that can be used to fund acquisitions, Kestenbaum said in an interview at Bloomberg’s office in Toronto. “$500-million deals don’t really move the needle, and I don’t like really looking at what it costs, I like looking at what it creates in value.”

Kestenbaum is gearing up for acquisitions four days after President Donald Trump announced he would eliminate the 25 percent tariff the U.S. charged on steel imports from Canada and Mexico. Overnight, the decision resulted in new orders and grew Stelco’s market fivefold, Kestenbaum said. That's been reflected in the steelmaker's shares which have surged about 17 percent in Toronto for a market value of about C$1.6 billion ($1.2 billion) in the last two trading days.

Areas offering the highest profitability for acquisitions include galvanized steel in Canada as well as cold-rolled steel for sales on both sides of the border, Kestenbaum said. Customers have also run into shortages of slab steel due to tariffs on other countries, making them another interesting area for potential acquisitions. Stelco is unlikely to go after downstream assets, he added.

For funding, the company could take on debt, temporarily, but it typically looks to get rid of that debt in 12 to 18 months, said the executive chairman. But it could also sell assets, including some of its 800 acres in Hamilton, ``the Brooklyn of Toronto,'' which could be sold to developers for industrial purposes or film studios looking to take advantage of the city's tax incentives, Kestenbaum said.

The company also has 2,400 acres at its Nanticoke facilities on Lake Erie which would be an ideal location for an automotive company to set up shop, right next to production from Stelco's steel operations. He noted “some very high profile” companies have inquired about doing so.

Stelco has already booked new business since the weekend in both the U.S. and Canada, and said other potential customers have continued to call. Anticipation that removal of the tariffs will pave the way for ratification of the U.S.-Mexico-Canada Agreement is also boosting optimism, he said.

The new trade deal, with its requirement for more content to be sourced from the continent, is a “huge improvement” from Nafta and will generate “tremendous opportunity” for Stelco, Kestenbaum said.

Trump's tariffs may have forced the nimble Canadian steelmaker to refocus its sales efforts on domestic production, increasing domestic revenue to 85 percent of total sales from 70 percent before the tariffs, but the president negotiated a good deal, along with Canada and Mexico, he said.

``Trump likes talking about it like it’s a great deal, and a lot of people kind of make fun of him saying that it’s almost the same as Nafta -- No,” Kestenbaum said. “There’s been a lot of improvements in the new USMCA deal. Trump is right.”

He also gave a shout out to his 2,200 employees for all their work through the tariffs and efforts of the United Steelworkers union to remove the tariffs. As a thank you, a C$1,000 bonus is on the way, he said.

To contact the reporter on this story: Joe Deaux in New York at jdeaux@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Jacqueline Thorpe, Steven Frank

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