AK Steel (AKS) has closed its earlier announced acquisition of Severstal Dearborn, LLC. The Ohio-based steel maker announced the deal in Jul 2014. The company received regulatory clearance for the acquisition earlier this month.
AK Steel made cash payment of $707 million for the takeover, including $314 million for working capital. The acquisition also includes a cokemaking facility and interests in three joint ventures that process flat-rolled steel products. AK Steel financed the deal through equity and senior unsecured notes offerings.
AK Steel will now refer the newly acquired business as Dearborn Works. The plant makes high-quality, flat-rolled steels for automotive, construction and appliance markets.
AK Steel plans to use all of Dearborn's production units. The plant has the capacity of producing about 2.5 million tons of finished steel per year. With the closure of the acquisition, AK Steel now expects its annual shipments to exceed 7.5 million tons.
The acquisition will be beneficial to AK Steel in a number of ways. The Dearborn plant is located nearby many of AK Steel’s customers and the plant’s assets as well as other facilities complement its existing carbon steel operations. The company will get access to highly modernized and upgraded steelmaking equipment and facilities.
The buyout is expected to boost AK Steel’s future earnings and improve its credit profile and liquidity. The company plans to utilize the operational flexibility enabled by the addition of the Dearborn blast furnace to cater the needs of its customers.
AK Steel will also be able to attain cost synergies by saving purchase, transportation and overhead costs. It envisions costs synergies of around $50 million with roughly $25 million expected to be realized in 2015.
AK Steel is a Zacks Rank #3 (Hold) stock.
Other companies in the steel space worth considering include United States Steel Corp. (X), Grupo Simec S.A.B. de C.V. (SIM) and TimkenSteel Corp. (TMST) with all holding a Zacks Rank #1 (Strong Buy).
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