Jun 27 2006
OneSteel and Smorgon Steel today announced that they have reached an agreement under which OneSteel will acquire all of the shares in Smorgon Steel.
Under the Proposed Transaction Smorgon Steel shareholders will receive a combination of OneSteel ordinary shares and cash with an implied value of $1.76 per Smorgon Steel share, representing a premium of 31.8% to Smorgon Steel’s one month VWAP2. Additionally, Smorgon Steel shareholders will continue to be entitled to the Smorgon Steel final dividend (of 5.0 cents per share) for the second half of the year ended 30 June 2006. This implies a premium of 35.6% to Smorgon Steel’s one month VWAP when the Smorgon Steel final dividend is taken into account.
The implied offer price values Smorgon Steel’s equity at approximately $1.6 billion and Smorgon Steel’s enterprise value at approximately $2.7 billion. Immediately after the Proposed Transaction is completed, Smorgon Steel shareholders will collectively hold an interest of approximately 39% in OneSteel and will therefore be in a position to share in the expected ongoing benefits of the Proposed Transaction.
The combination of the businesses is expected to generate net EBITDA synergies of $70 million per annum by the end of the third full year following completion. The Proposed Transaction is expected to be EPS accretive (pre non-recurring items and amortisation) for both OneSteel and Smorgon Steel shareholders in its first full year of operations.
In the absence of a superior proposal, the Proposed Transaction is unanimously recommended by the directors of Smorgon Steel, each of whom intends to vote all shares they personally hold in favour of the Proposed Transaction. Two Smorgon Steel directors, Graham Smorgon and Laurence Cox, will join the OneSteel Board of Directors if the Proposed Transaction is approved. It is intended that the Proposed Transaction be implemented by way of a scheme of arrangement to be voted on by Smorgon Steel shareholders.
Following implementation of the Proposed Transaction, OneSteel will become the pre-eminent domestic manufacturer and distributor of steel and metal products. With pro-forma revenue for the year ending 30 June 2006 in excess of $5.5 billion and EBITDA of approximately $700 million, the company will enjoy a large regional footprint with more than 10,000 employees over 200 sites across Australia and more than 10 offshore offices and operations.
OneSteel Chairman Peter Smedley and Smorgon Steel Chairman Graham Smorgon said the Proposed Transaction will generate significant benefits for the shareholders and customers of both companies.
Mr Smedley said, “The transaction represents the next step in the restructuring of the Australian steel industry. It will further consolidate the sector leading to a lower cost and more efficient steel industry providing a platform from which to effectively compete in the world steel market for years to come.” “OneSteel and Smorgon Steel are largely complementary operations. The combination will allow OneSteel to provide a more comprehensive and competitive product and service offering to customers of both companies, greater security of raw material supply and material cost savings, thereby providing significant benefits for our shareholders.”
“We look forward to Graham Smorgon and Laurence Cox joining the OneSteel Board when the Proposed Transaction becomes effective. Their experience and knowledge will not only assist in the integration of the two organisations, but also assist in shaping the long-term strategic direction of the company”, Mr Smedley added.
Mr Smorgon said, “Smorgon Steel has had a proud history as an independent Australian steel company. From 1999 to 2000, Smorgon Steel was the only stand-alone listed steel company on the Australian Stock Exchange. The Company has made a number of substantial achievements and OneSteel’s offer which, when added to Smorgon Steel’s final dividend of 5.0 cents per share means that our shareholders will receive value of $1.81 per share.”
“Although I will be sad to see the end of Smorgon Steel’s existence as a separate company, I am delighted that the offer from OneSteel reflects the inherent value of the company and also provides Smorgon Steel’s shareholders with the opportunity to continue to be owners of a great Australian enterprise.”
The Proposed Transaction is subject to the approval of Smorgon Steel shareholders, the Court, the ACCC and certain other conditions. OneSteel and Smorgon Steel have commenced discussions with the ACCC.