The Techint Group agreed to pay 5.03 billion reais ($2.7 billion) for a 27.7 percent voting stake in Brazil’s Usinas Siderurgicas de Minas Gerais SA (USIM3) to boost access to the largest market for steel in Latin America.
Techint, through its Ternium SA (TX) and Tenaris SA (TEN) units, will buy 139.7 million ordinary shares at 36 reais apiece in the company from Camargo Correa SA, Grupo Votorantim and Usiminas’s workers pension fund, Ternium said in a statement late yesterday. That’s a 58 percent premium over the 20-day moving average for voting shares of Brazil’s second-largest steelmaker through Nov. 25, according to data compiled by Bloomberg.
Ternium’s American depositary receipts dropped 17 percent to $16.03 at the close in New York. Usiminas voting shares fell 3.6 percent to 19.00 reais in Sao Paulo, the worst performer in Brazil’s benchmark Bovespa Index (IBOV) today, while the company’s preferred shares, the most traded type of stock, rose (USIM5) 2.8 percent.
The deal will give Ternium, the second-largest steelmaker in Latin America and Tenaris, the world’s biggest maker of seamless pipes, greater access to the Brazilian market for flat steel used in cars and home appliances. They join Nippon Steel Corp. in the controlling group, thwarting takeover efforts by rival Cia. Siderurgica Nacional SA (CSNA3), or CSN, HSBC Holdings equity analyst Jonathan Brandt said.
CSN’s holdings of Usiminas are now “somewhat of an overhang as neither Nippon Steel nor Ternium need to buy this stake as they already have control,” Brandt, based in New York, wrote in a note to customers today.
CSN Chief Executive Officer Benjamin Steinbruch held talks with Camargo and Votorantim to buy their voting stock for 40 reais each, two people familiar with the negotiations told Bloomberg News in September. CSN more than doubled its voting stake in Usiminas this year to 11.66 percent as of Nov. 18 and quadrupled its preferred-stock holdings to 20.14 percent.
Nippon Steel, Ternium, Tenaris and the employees’ pension fund will now own a combined 63.9 percent of voting shares, Usiminas said in a regulatory filing today. Nippon Steel, which previously shared control of the steelmaker with Camargo and Votorantim and separately agreed to buy 8.5 million shares, will hold 29.5 percent of the voting stock, while the pension fund will hold 6.8 percent, Usiminas said in the filing.
“With Nippon Steel, Usiminas and Ternium working together we will be able to enhance each company’s competitiveness in technology, quality and cost efficiency and to offer a wider product range,” Ternium said in the statement.
Most decisions of the controlling block will have to be approved by a 65 percent majority after an investor’s agreement was amended, Ternium said. Ternium and Tenaris will finance the purchase with cash on hand and debt, according to the statement.
“The business environment surrounding Usiminas continues to be challenging due to the rising prices of raw materials, intense competition among steel companies in the global market and continued appreciation of the Brazilian real,” Usiminas said in the regulatory filing. Company officials declined to comment further.
Usiminas, based in Belo Horizonte in Brazil, was established in 1958 after the country agreed to create a joint venture with Japan. Japanese investors took then a 40 percent stake in the steelmaker, according to Nippon Steel’s website.
Selling the Usiminas stake is part of Votorantim’s strategy to focus on its “core” businesses such as cement, metals, long steel, pulp and orange juice, Votorantim said in a statement distributed by an external public relations firm in Brazil. Camargo Correa said in a separate statement on its website that it will focus on the infrastructure industry after a “strategic reorientation” prompted the stake sale.
Techint is controlled by the Italian-Argentine Rocca family through Luxembourg-based holding company San Faustin NV and both Ternium and Tenaris have their headquarters in Buenos Aires. Paolo Rocca is chairman of both Ternium and Tenaris while his brother Gianfelice chairs San Faustin.