Toronto-based steel producer Gerdau Ameristeel said late Tuesday it will acquire Chaparral Steel for $4.22 billion, or $86/share -- a 14% premium to its $75.69 Tuesday close. The deal is an attempt by Gerdau, which is 67%-owned by Brazil's Gerdau AS, to diversify its product offerings. Chaparral is the number-two maker of structural steel beams in North America; it is also a major producer of steel bars and a recycling company. The acquisition will boost Gerdau's production of the steel used in office buildings and bridges -- which are in heavy demand due to a surge in infrastructure spending and a strong commercial real estate market -- by about 33%. Chaparral said in April it was exploring strategic options, including a possible sale, and that it hired Goldman Sachs to advise it. JP Morgan Chase is advising Gerdau and has promised financing of $4.6 billion. UBS analyst Edmo Chagas criticized the deal: "We believe the acquisition is expensive and slightly negative for Gerdau," he wrote in a research note. Chaparral shares were up 71% YTD, and 20% since it put itself on the block.
Sources: Wall Street Journal, Bloomberg,
Commentary: Chaparral Steel Uses Eco-Friendly Methods In Steel Production • Gerdau Ameristeel Building its Way to the Top • Capital Market Gives IPSCO Top Rating, Gerdau Ameristeel To Outperform
Stocks/ETFs to watch: Chaparral Steel Company (CHAP), Gerdau Ameristeel (GNA), Goldman Sachs Group Inc. (NYSE:GS), JPMorgan & Chase Co. (NYSE:JPM). Competitors: Arcelor Mittal (NYSE:MT), United States Steel Corp. (NYSE:X)
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.