Gerdau Closes Ameristeel Transaction – Analyst Blog

Brazilian steel producer Gerdau S.A. (GGB) announced the completion of its full stake acquisition in Gerdau Ameristeel Corporation on August 30. Prior to this, Gerdau S.A. held roughly 66.3% stake in Ameristeel Corporation.

 

As per the terms of the transaction, Gerdau S.A. acquired the remaining 33.7% stake in Ameristeel Corporation by obtaining its outstanding shares for roughly US$11.00 per share or US$1.6 billion for cash. The offer price of $11.00 per share represented a 53.4% premium to Gerdau Ameristeel’s closing price as of June 1.

 

The shares of Ameristeel will be shortly delisted from the Toronto Stock Exchange and the New York Stock Exchange and the authorities including Securities and Exchange Commission and Canadian Securities Regulatory Authorities will be informed in order to cancel the registration of Ameristeel Corporation.

 

The combined business will help Gerdau S.A. extend its global presence by bringing additional business development opportunities. Also, Gerdau S.A.’s credit-worthiness will enable Ameristeel Corporation to procure low-cost funds.

 

The outlook for the world steel market remains positive with continued recovery expected in 2010. It is anticipated that the Brazilian market would also remain strong in 2010 with heavy demand from the manufacturing and construction industry.

 

Gerdau S.A. is the second largest steel producer in the world. The company produces steel mostly through mini-mills and distributes products through its own network of commercial Gerdau branches in Brazil. In the North American market, the company operates through its subsidiary, Gerdau Ameristeel. Gerdau S.A.’s North American facilities are based in both the U.S. and Canada.

 

Prime competitors of the company include Companhia Siderurgica Nacional (SID) and the privately held ArcelorMittal Brasil S.A. We currently maintain a Neutral recommendation on the stock, which is in line with the Zacks #3 Rank (Hold).