Nucor (NUE) has wrapped up its acquisition of Gallatin Steel Company from global steel giant ArcelorMittal (MT) and Brazilian steel maker Gerdau (GGB) for roughly $770 million in cash. The North Carolina-based steel maker announced the deal last month.
The effective purchase price for Nucor is around $630 million, barring the net present value of the expected tax benefits. The company funded the buyout with available cash and commercial paper borrowings.
Both ArcelorMittal and Gerdau held a 50% stake in Gallatin Steel – a flat-rolled products mill based in Gallatin County, KY, with an annual capacity of roughly 1.8 million tons. The mill melts scrap, pig iron and hot briquetted iron from a number of sources and processes the material to make flat rolled steel. Its assets make a vast spectrum of steels from low to high carbon grades.
John Farris, who earlier served as Vice President and General Manager of Nucor Steel Texas, has been named Vice President and General Manager of Nucor Steel Gallatin.
The purchase of Gallatin Steel is in tandem with Nucor's strategy for profitable growth. The acquisition is expected to strengthen the company’s foothold in the key Midwest market (the biggest flat-rolled consuming region in the U.S) and allow it to better serve its flat-rolled customers in the growing pipe and tube segment.
The addition of Gallatin Steel is expected to enhance Nucor's total flat-rolled product annual capacity by 16% to around 13 million tons. Moreover, the acquisition is expected to be immediately accretive to Nucor's cash flow and earnings and create significant value for its shareholders.
The divestment is in sync with ArcelorMittal’s strategy to selectively dispose its non-core assets. On the other hand, the sale will allow Gerdau to focus on its core assets in North America.
Nucor, a Zacks Rank #2 (Buy) stock, is making a good progress with its key projects that are expected to boost its earnings power over the long-term. Moreover, the company is seeing strength across end markets such as automotive, energy, heavy equipment and general manufacturing. Demand across these end-markets is healthy, lending support to the company’s revenues.
However, Nucor, like other U.S. steel makers including U.S. Steel (X), remains hamstrung by surging domestic steel imports. Despite the U.S. steel industry’s low capacity utilization, imports continue to flow into the domestic market due to foreign producers’ overcapacity.
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