Gerdau Ameristeel will purchase Chaparral Steel Company for an estimated $4.2 billion in a deal announced on July 10 by both companies.
Chaparral Steel Company announced Tuesday that it entered into a definitive agreement to be acquired by Gerdau Ameristeel Corp., for $86.00 per share in cash. The merger agreement was unanimously approved by the Boards of Directors of both companies.
Gerdau Ameristeel, is the U.S. unit of the biggest steel maker in Latin America. Chaparral Steel had announced this spring it would like to sell the company.
“After an extensive review of all options for the company, Chaparral’s Board of Directors has determined that this transaction creates substantial value for our stockholders,” stated Tommy A. Valenta, Chaparral’s President and Chief Executive Officer. “Over the past few years, our people have worked hard to enhance our operations, improve our competitive position, and transform Chaparral into one of the most profitable steel companies in the world.”
“In addition to delivering significant value to our stockholders Chaparral will be joining one of the largest and most respected steel companies in the world,” Valenta added. “Gerdau Ameristeel shares similar values with our company, including a focus on profitability, developing a loyal customer base, providing a safe workplace, and a commitment to quality products. As part of this new and larger company, we will have a more diversified product offering that will enhance our ability to better serve both existing and new customers.”
Closing of the transaction is subject to the approval of Chaparral’s stockholders and other customary closing conditions, including regulatory approvals. The merger is expected to close later this calendar year.
Goldman, Sachs & Co. acted as the Company’s exclusive financial advisor and Wachtell, Lipton, Rosen & Katz acted as legal advisor.
Chaparral Steel Company, headquartered in Midlothian, is the second largest producer of structural steel beams in North America. The company is also a supplier of steel bar products. In addition, Chaparral is a leading North American recycling company.
It is not known how or if the sale will affect production or services in Midlothian.
As the company headquarters, the sales departmenta nd several other key departments are headquartered in Midlothian.
Chaparral has about 1,400 employees.
Chaparral Steel is the second largest supplier of structural steel products in North America with locations in Midlothian, and Dinwiddie County, Virginia. Chaparral follows a market mill concept, making a wide variety of products including structural beams, specialty bar and piling products, all at low cost. The two mills have a combined production capacity of 2.8 million tons of steel per year. The innovation of new products and processes, particularly in the area of marketing solutions, is a key element to enhance Chaparral’s competitive strengths.
From its beginning in 1975, Chaparral has been a technologically advanced steel manufacturer using 100% recycled steel primarily from shredded automobiles. We operate at the leading edge of environmental technology under a “zero waste” philosophy utilizing innovative and proprietary processes to eliminate landfill waste while increasing metals recovery.
Buying Chaparral will increase Gerdau’s metal output by about a third, adding 2.9 million tons of steel used in nonresidential construction. The acquisition adds to $93 billion in global steel mergers and takeovers this year which have given producers greater control over prices.
Gerdau’s offer is 20 percent higher than Chaparral’s closing share price on April 25, when the company said it hired Goldman Sachs to explore a merger or sale. The transaction, expected to be completed later this year, will deliver annual pretax operating synergies of more than $55 million by 2008, Gerdau said.
Steel mergers globally are accelerating as companies seek greater flexibility to increase output of higher-priced steel or idle capacity to sustain prices. Mittal Steel’s $38.3 billion purchase of Arcelor last year has also made companies ponder whether they want to buy other steel makers or risk being acquired themselves, according to JPMorgan Chase analysts.
Gerdau Ameristeel, 67 percent owned by Gerdau, based in Rio de Janeiro, has an annual production capacity of nine million tons. Both it and Chaparral employ so-called mini-mill technology, which uses scrap metal as a raw material rather than the iron ore and coal used in blast furnaces.
The takeover is the fifth-biggest in the industry this year behind Tata Steel’s $12 billion purchase of Corus Group, SSAB Svenskt Staal’s $7.7 billion takeover of Ipsco, Arcelor Mittal’s $5.4 billion takeover of Arcelor Brasil and the $5 billion Voestalpine paid for Bšhler-Uddeholm.
“This transaction reaffirms our strategy to participate in the global steel consolidation,” said Andr/ Johannpeter, Gerdau’s chief executive.
Toronto-based Gerdau Ameristeel has steel production operations in Chatham and Whitby, Ontario, and Selkirk, Manitoba. It is also a major steel recycler with locations in the U.S. and in Ontario cities such as Cornall, Whitby, London, Toronto and Oshawa. It has executive offices in Tampa, Fla.