The deal is valued at approximately US$1.1 billion based on approximately 30 million of fully diluted shares. The company intends to pay for the acquisition and retire the majority of Stelco's existing debt of US$760 million 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.
According to the company, the acquisition of Stelco will provide annualized pre-tax synergies of more than $100 million by the end of 2008. Further, the transaction will be accretive to earnings per share in 2008, excluding synergies and the impact of purchase accounting adjustments.
The company also expects the acquisition of Stelco to strengthen its position as a supplier of flat-rolled steel products to the North American market. Following the acquisition, U. S. Steel will have annual raw steel capability of approximately 33 million net tons.
"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. Commenting on the acquisition, Rodney Mott, Stelco's President and CEO said, "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."
While the company has made commitments to the Province of Ontario with regard to Stelco's main pension plans and operations in the Province, it also plans to make significant capital expenditures at the Hamilton and Lake Erie facilities and to 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. The voluntary contribution to Stelco's main pension plans at the closing of the transaction will be approximately US$31 million. Additionally, the 2006 pension agreements are being amended to reflect the acquisition of Stelco by U. S. Steel.
J. P. Morgan Securities Inc. was the financial adviser to U. S. Steel and CIBC World Markets and UBS were financial advisers to Stelco, while Morgan Lewis & Bockius and Osler Hoskin & Harcourt served as counsel to U. S. Steel, and McCarthy Tetrault served as counsel to Stelco.
For the recently concluded second quarter, United Steel had reported earnings that declined form a year ago due to a charge related to the early redemption of its senior notes due 2010 and lower steel shipments. Net income applicable to common stock was US$302 million or US$2.54 per share, compared to US$404 million or US$3.22 per share in the prior year quarter. Analysts had expected the company to earn $2.35 per share for the quarter. The Pittsburgh, Pennsylvania-based company's net sales increased to $4.23 billion from $4.11 billion in the same quarter of last year, against analysts' expectation of $4.05 billion.
X closed Friday's regular session at US$93.39, up US$2.59 or 2.85% on a volume of 3,145,100 shares. Meanwhile, STE.TO surged to C$26.93, adding C$1.43 or 5.61% on a volume of 171,029 shares.
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