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Gerdau to Buy Out Ameristeel Shares for $1.7 Billion

Gerdau to pay $1.7 billion for Gerdau Armisteel shares
Workers build columns of rebar to be used in construction at a Gerdau SA steel plant in Brazil. Photographer: Paulo Fridman/Bloomberg

Gerdau SA, the largest Brazilian steelmaker, said it plans to buy the shares it doesn’t already own of U.S. unit Gerdau Ameristeel Corp. for about $1.7 billion to gain greater control over its North American operations.

The company, based in Porto Alegre, will pay $11 per share in cash for the 33.7 percent of the unit it doesn’t now control, a 53.4 percent premium to yesterday’s closing share price, Gerdau said today in a filing with Brazilian regulators. Ameristeel shares rose as much as 57 percent today in New York.

“They’re offering a very attractive premium and I would be surprised if shareholders don’t accept it,” Pedro Galdi, an analyst with Sao Paulo-based SLW Corretora who rates the shares “hold,” said today in a telephone interview from the city.

Gerdau, which reported a sixfold increase in quarterly profit in May as steel demand rebounded, said the transaction will generate cost savings that include cheaper funding for Ameristeel because of Gerdau’s stronger credit ratings. The company will fund the deal through cash and existing financing.

Ameristeel jumped $3.90, or 54 percent, to $11.07 in New York Stock Exchange composite trading, after earlier rising as much as 57 percent. Before today, the stock fell 13 percent this year. Gerdau climbed 2.6 percent to 24.87 reais in Sao Paulo trading.

Gerdau, which got 31 percent of its sales from North American operations last year, is the Americas’ biggest maker of long steel used for construction and has the capacity to produce about 25 million metric tons a year of the material. Ameristeel has the capacity to produce about 10 million tons.

Share Valuation

“We sense the more consolidated structure will enhance a global strategic focus,” Mark Parr, managing director at Cleveland-based KeyBanc Capital Markets Inc., wrote in a note to clients today. It will “allow Gerdau SA to more fully capitalize on its leadership in long products in the Americas and Europe.”

Toronto-based RBC Capital Markets, a unit of the Royal Bank of Canada, valued common shares of Ameristeel at $11 to $13 each, Gerdau said in a separate statement.

Shareholders could ask for a premium, seeking to sell their shares at $14 each, Michael Willemse, an analyst with Toronto-based CIBC World Markets Inc., wrote in a report.

The price for the shares represents “full and fair value,” Gerdau Chairman Jorge Gerdau Johannpeter said today in a statement. A special meeting of Gerdau Ameristeel shareholders will be held early in the third quarter, Gerdau said.

Gerdau said May 6 first-quarter profit rose to 504.3 million reais ($274 million) or 35 centavos a share, from 88.4 million reais, or 6 centavos a year earlier as global steel demand rebounded.

Gerdau said JP Morgan advised it on the transaction.

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