Steelmaker Bulks Up With Deal -- WSJ
03 Janeiro 2018 - 06:02AM
Dow Jones News
Commercial Metals to buy U.S. assets from Brazil's Gerdau for
$600 million
By Bob Tita
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 3, 2018).
Texas-based Commercial Metals Co. said it plans to acquire
assets from a Brazilian rival that would double its share of a key
construction material.
The company plans to pay $600 million in cash for the U.S.
steel-reinforcing-bar assets of Brazil's Gerdau SA, adding four
mills and 33 fabrication plants.
Gerdau's exit from the U.S. rebar market would leave Commercial
Metals and North Carolina-based Nucor Corp. as the two dominant
domestic suppliers of rebar, which is used to strengthen concrete
used for commercial buildings, bridges and road projects.
Analysts on Tuesday said the move could further reduce pricing
pressure, much of it coming from foreign steel companies. Rebar
imports were on pace to drop 17% in 2017, according to the Commerce
Department. Tariffs and higher prices for the scrap steel used to
make it discourage foreign producers from selling rebar in the U.S.
at discounted prices.
The proposed deal would increase Commercial Metals' steelmaking
capacity by about 60% to 7.2 million tons a year. Its share of
rebar consumed in the U.S. would rise to about 40% from about 21%,
analysts at Jefferies estimated.
"This acquisition represents a unique opportunity to acquire
quality assets," Commercial Metals Chief Executive Barbara Smith
said during a call with analysts. "Having the larger footprint and
a larger geographic presence gives us all sorts of options."
Commercial Metals shares rose 6.8% on Tuesday to $22.77.
Domestic rebar producers are aiming to add production closer to
where rebar is used, to reduce transportation and warehousing
expenses.
Commercial Metals, based in the Dallas suburb of Irving, is
counting on an improving rebar market to support its investment in
the Gerdau plants.
The company and Nucor are both building new mills in
anticipation of rising demand for rebar from expanding construction
activity in the U.S. this year. Analysts said the rebar market
would further benefit from a comprehensive U.S. infrastructure
program being discussed by the Trump administration.
Profits have been lackluster in recent years as a rising volumes
of low-cost foreign rebar drove down prices in the U.S. Ms. Smith
said Gerdau's plants have been operating well below their maximum
production rate. "Margins have been quite compressed," she
said.
The sale will reduce Gerdau's steel-making capacity in North
America by about 23%. It will continue to operate mills that
produce other long-length steel products, such as bars and beams,
used in manufacturing and construction.
The company is undergoing a major structural transformation in
Brazil where steel companies have struggled in recent years amid
the country's poor economy. Gerdau faces added stress from a
criminal investigation in Brazil and a management shake-up. The
company's founding family last year relinquished management duties
after more than a century. A new chief executive this week took
over for André Gerdau Johannpeter.
Mr. Johannpeter, who is vice-chairman, said the sale to
Commercial Metals will allow the company to be more profitable by
focusing on "better return opportunities in the markets where we
operate."
Brazilian prosecutors filed charges last year against a tax
director at Gerdau and several other consultants and lawyers linked
to the company, accusing the men of agreeing to bribe officials as
part of a nationwide tax-evasion scheme. Gerdau denied the charges
and has said the management changes were not prompted by the
alleged wrongdoing.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
January 03, 2018 02:47 ET (07:47 GMT)
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