U.S. Steel To Acquire Canada's Stelco For $1.1 Billion

Monday, August 27th 2007, 3:17 pm

By: News On 6

PITTSBURGH (AP) _ United States Steel Corp. is buying the Canadian steel maker Stelco Inc. for about $1.1 billion in a move expected to bolster its position as a supplier to the North American automotive industry.

The Pittsburgh-based company said slabs produced at Stelco's Lake Erie and Hamilton plants will supply finishing facilities for flat-rolled steel _ used in the auto and appliance industries _ and tubular steel used mostly in the energy sector.

After the acquisition, U.S. Steel will become the world's fifth-largest steel maker. It will have with a production capacity of about 33 million net tons of raw steel annually, up from its currently yearly capacity of 26.8 million tons.

Stelco emerged from bankruptcy protection last year and announced plans to cut 15 percent of its work force after settling a new four-year contract with the United Steelworkers union.

John Surma, U.S. Steel's chairman and chief executive, said Stelco was an important strategic acquisition that would increase U.S. Steel's ability to respond to market demands and customer needs.

``We have some optimism about the long-term outlook for North American steel,'' he said in a conference call with analysts and reporters Monday. ``(Stelco) fits nicely into our Midwestern consumption patterns.''

Surma said Stelco's management team had done an ``excellent job'' of restructuring the company, partly through facility shutdowns, and that it could become a ``very high-performing'' part of U.S. Steel's business.

Global steel makers have been consolidating in recent years to deal with intense competition, the need for major reinvestment in aging mills and new opportunities in Asia.

Last year, U.S. Steel bought Texas-based Lone Star Technologies Inc., which makes welded pipe used in oil fields, for $2 billion.

Charles Bradford, an industry analyst with Bradford Research/Soliel Securities in New York, said U.S. Steel's acquisition of Stelco would strengthen its position in the automotive sector.

He noted that the automotive industry accounted for the largest portion _ 38 percent _ of Stelco's business, and that the combination would raise U.S. Steel's automotive industry shipments from 18 percent to 22 percent of total business.

It's also a good fit geographically, he added, pointing to the close proximity of Stelco's Lake Erie plant to a U.S. Steel facility in the Detroit area.

Under terms of the deal, U.S. Steel will pay Canadian $38.50 ($36.73) per share for Stelco's 30 million shares outstanding. As of June 30, Stelco had about $760 million of net debt on its balance sheet.

Shareholders owning more than 76 percent of Stelco's outstanding shares, including Tricap Management Ltd., Sunrise Partners LP, Appaloosa Management LP and Rodney Mott, the CEO of Stelco, have committed to supporting the transaction.

U.S. Steel said it will pay for the acquisition and retire the majority of Stelco's existing debt through a combination of cash on hand, existing financing facilities and proceeds under two new senior credit facilities, which total $900 million and were underwritten by J.P. Morgan Securities Inc. and Scotia Capital.

U.S. Steel expects the deal will save more than $100 million by the end of 2008, and add to 2008 earnings per share, excluding the impact of purchase accounting adjustments.

The deal is expected to close in the fourth quarter, subject to review by U.S. and Canadian regulators.

Shares of U.S. Steel rose 14 cents to $93.53 in afternoon trading Monday.