U.S. Steel Corp to Buy Stelco for About $1.1B

TORONTO/NEW YORK – U.S. Steel Corp is to acquire Stelco Inc for about $1.1 billion to strengthen its position as a supplier of flat-rolled steel products in North America, the companies said.

Stelco, the last big Canadian-owned steelmaker to fall into foreign hands, had put itself up for sale in June after a wave of takeovers within the Canadian steel industry.

U.S. Steel will acquire Stelco for $38.50 per share, amounting to about $1.1 billion, based on about 30 million fully diluted shares, according to the companies. They announced the deal late on Sunday night.

Hamilton, Ontario-based Stelco, which emerged from bankruptcy protection last year, had about $760 million of net debt on its balance sheet as of June 30, the companies said.

Stelco stock closed at C$26.93 on Friday on the Toronto Stock Exchange, and John Hughes, steels, mining and metals analyst at Desjardins Securities, said shareholders should be happy with the C$38.50 cash-per-share offer.

"It seems to be the theme across the materials group in terms of acquisitions ... with steel producers going for more strategic prices than economic prices over the longer term," he said.

Shareholders owning more than 76 percent of Stelco's shares have agreed to support the deal, the companies said.

The deal, expected to close before the end of 2007, will give Pittsburgh-based U.S. Steel annual raw steel capability of about 33 million net tons, the firms said.

U.S. Steel projects the deal will bring annualized pre-tax synergies of more than $100 million by the end of 2008. The transaction should boost earnings per share in 2008, excluding synergies and the impact of purchase accounting adjustments.

"The operational synergies for U.S. Steel would certainly be in excess of any foreign producer," said Hughes.

Last month, a union leader told Reuters that U.S. Steel had joined a growing list of companies looking to buy or invest in Stelco. Others included Russian steelmaker OAO Severstal , Ukraine's Metinvest, and Essar Global Ltd., the parent firm of Essar Steel Ltd.

Hughes said "there's a real potential" the buyer will spin off non-core Stelco assets, splitting Stelco's older Hamilton facilities from its profitable Lake Erie Works in Nanticoke, Ont.

U.S. Steel said it would contribute about $31 million to Stelco's main pension plans at the deal's closing. It said it plans "significant" capital expenditures at both the Hamilton and Lake Erie facilities.

Stelco also owns several joint venture interests including iron ore operations in the United States and Canada.

Stelco, created in 1910, said in June it was considering a merger, strategic partnerships, acquisitions or a sale of all or part of the company, but gave no assurance a deal would happen.

U.S. Steel was one of several firms to consider an offer for Stelco while the Canadian steelmaker was under bankruptcy protection.

Canada's Dofasco, Algoma Steel and Ipsco were all acquired recently in big steel industry deals.