BlueScope to Buy Cargill's North Star Stake for $720 Million

  • Producer acted after Cargill approached by third party
  • Company will continue to produce at Australia's Port Kembla

BlueScope Steel Ltd., Australia’s largest steelmaker, agreed to buy the remaining 50 percent of its joint venture in the U.S. with Cargill Inc. for $720 million, giving the producer full ownership of North America’s most profitable mill.

The deal to acquire North Star BlueScope Steel LLC , which operates a mini-mill in Delta, Ohio that produces about 2 million tons a year of hot-rolled coil, will boost cashflow and earnings, the Melbourne-based company said in a presentation Monday. It exercised a right of last refusal to match an offer Cargill had received from an unnamed third party.

While prices of hot-rolled steel, the benchmark product used in construction and manufacturing, have dropped by 32 percent this year on rising exports from China, steelmakers in the U.S. are being boosted by rising demand in the domestic construction industry. Automaking and construction accounted for 80 percent of North Star’s end-markets this fiscal year, BlueScope said in the presentation.

“We view the the acquisition as broadly positive from a credit perspective,” Standard & Poor’s analysts Graeme Ferguson and May Zhong said Monday in a note. The deal has no immediate impact on the producer’s rating at BB with a stable outlook, the analysts said.

Australian Steelworks

BlueScope, which also boosted its first-half underlying earnings forecast by 40 percent, excluding the impact of the acquisition, rose 11 percent to A$4.50 at the close in Sydney, the most in almost four months.

The company’s acquisition won’t require regulatory approvals and will be funded through long-term bank debt and issuance in the U.S. capital markets, the producer said. Credit Suisse Group AG and Vinson & Elkins LLP acted as advisers to BlueScope.

 “North Star is the most profitable steel mill in North America, because it is cost competitive and it’s a high quality asset,” Chief Executive Officer Paul O’Malley said Monday on a conference call with reporters. “We need to be cost competitive in our local markets, and there is no mill more cost competitive in its local markets than North Star.”

BlueScope also announced it will continue to make steel in Australia, maintaining an almost century-long history of steelmaking, after agreeing cost reductions at its Port Kembla site in New South Wales-state, the company said in a separate statement. Output at the steelworks -- operated since the late 1920s -- was put under review amid high production costs, it said in August.

Savings of about A$200 million ($144 million) are being targeted through June 2017, including cuts to labor costs, BlueScope said.

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