Trans-Pacific Steel Deal Boosted By Government Incentives

SEATTLE (Scrap Monster): Government protection of local industry on both sides of the Pacific is the key to an emerging $8.7 billion takeover offer for an Australian steel maker which also has a big U.S. business.

BlueScope Steel, which has roots which can traced back to Australia’s biggest company and early steel maker, BHP Group, is the target of a joint bid launched by U.S.-based Steel Dynamics and SGH, a company controlled by Australian billionaire Kerry Stokes.

Better known as the owner of media assets in Australia, the 85-year-old Stokes has been reshaping his interests, expanding exposure to building materials while reducing media investment.

Day-to-day management control is also shifting as Stokes hands the reins to one of sons, 49-year-old Ryan Stokes, the chief executive of SGH which was once knowns as Seven Group Holdings owner of Australia’s Channel Seven television network.

The bid for BlueScope by SGH and Steel Dynamics follows three earlier attempts by the U.S. company to acquire the Australian business which has a big steel mill in the east coast city of Wollongong and on the outskirt of Delta, a small town in the U.S. State of Ohio.

If successful, SGH and Steel Dynamics plan to split BlueScope’s assets. SGH will keep the Australian business, which includes a large property portfolio, while Steel Dynamics will own the U.S. assets.

Chinese Steel Dominance

Despite interest in steel fading in much of the world because of intense competition from low-cost Chinese exports a revival is underway in the U.S. thanks to tough government tariff and import controls, with the Australian Government adopting a similar industry support program called Future Made in Australia.

While not openly described as protectionism that is the obvious effect of making imports more expensive while offering financial assistance to local industry.

The co-founder and chief executive of Steel Dynamics, Mark Millett said the acquisition of BlueScope’s North American assets would be “highly complementary” to his company’s existing operations.

“The combination of BlueScope’s North American teams and assets with Steel Dynamics would be an excellent fit in every sense and create value for shareholders,” Millett said.

The same might also be said about how BlueScope’s Australian interests will fit into the mix of industrial assets which have grown to dominate SGH, superseding fading exposure to media.

Steel production and a countrywide distribution network will join Boral, the building materials business of SGH, Coates, an equipment hire business, WesTrac, which has a Caterpillar earthmoving franchise.

Ryan Stokes said BlueScope’s Australian steel business was a strong strategic fit for SGH.

Investors have reacted cautiously to the all-cash joint bid for BlueScope pitched at A$30 a share, a 33% premium to the company’s three-month average price and A50 cents higher than the target’s last sales at A$29.50.

BlueScope management describes the takeover offer as “an unsolicited, non-binding and indicative proposal” which did not require an action, yet.

But the near-perfect fit of BlueScope’s U.S. assets with those of Steel Dynamics and the Australian assets with SGH’s rapidly expanding industrial supplies business points to the prize being so attractive that an increased offer to sway the BlueScope board can be expected.

Courtesy: www.forbes.com