Gerdau's Full Stake in Ameristeel - Analyst Blog

Brazilian steel producer, Gerdau S.A. (GGB) entered into a definitive agreement to acquire the remaining 33.7% stake in its North American unit, Gerdau Ameristeel Corporation (GNA) in an all-cash transaction amounting to $1.6 billion or $11.00 per common share. The offer price of $11.00 per share represents 53.4% premium to Gerdau Ameristeel’s closing price on June 1. Gerdau S.A. is presently the majority shareholder of Gerdau Ameristeel Corporation with a 66.3% stake in the company.

The transaction, already approved by Gerdau Ameristeel’s board of directors, requires shareholders’ approval at a special shareholders’ meeting to be held on August 10. Additionally, the approval by the Ontario Superior Court of Justice is also awaited. The transaction, if approved, is expected to be completed by August 2010.

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

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