Private equity firm Platinum Equity LP is
preparing to make a big jump in its metals service center
holdings with the addition of industry giant Ryerson Inc. to
its portfolio, which for the past 18 months held the three
service center companies in PNA Group Inc.
Beverly Hills, Calif.,-based Platinum Equity
signed a deal to pay Ryerson's shareholders a bit more than $1
billion and take on close to $1 billion of the company's debt
after an eight-month process set off by hedge fund Harbinger
Capital Partners, which blamed Ryerson's board for low share
valuation and launched a proxy challenge.
While describing the agreement as definitive,
the deal could still fall apart if a better offer were to
emerge. And the proxy challenge set for Ryerson's Aug. 23
annual meeting also was still playing out even after the merger
agreement was signed at the end of July.
Harbinger executives had questioned the
strategy of Ryerson's managers, suggesting the company was
underperforming in comparison to other service center companies
and proposing its own strategy for boosting Ryerson's share
value. Following the agreement with Platinum Equity, a
Harbinger spokesman said his company was disappointed with the
Ryerson's share price has gyrated all year
since Harbinger made its intentions known, going from $23.77
before the launch of the challenge to as high as $44.46 a share
in early May, when the board responded to the challenge by
starting a strategy review that resulted in contacts with more
than 50 possible buyers.
If the Platinum Equity deal ultimately goes
through, the management company will pay $34.50 per share in
cash for Ryerson's stock. While the transaction was described
as not subject to any financing conditions, a spokeswoman
declined to respond to questions about whether debt market
contractions shortly after the agreement might create
Also questioning the Platinum Equity deal
were the Standard & Poor's Rating Service, a division of
McGraw-Hill Cos., New York, and class-action law firm Cauley
Bowman Carney & Williams PLLC, Little Rock, Ark. The
ratings agency said it was reviewing credit and unsecured debt
ratings of Ryerson "with negative implications" in light of the
leveraged buyout, while the law firm said it was investigating
the proposed purchase at an acquisition price discounted to
recent stock trades and a 3-percent stock price decline in the
wake of the deal.
Ryerson executives said in later filings with
the U.S. Securities and Exchange Commission that the agreement
also had termination clauses calling for payments ranging
between $5 million and $25 million in a variety of scenarios if
the Platinum Equity deal falls through.
Also still in question is how Atlanta-based
PNA Group and Ryerson might operate within Platinum Equity
after the agreement is concluded. Ryerson executives said in
announcing the agreement that they expected to stay on after
the deal was completed, probably in the fourth quarter.
Ryerson operates more than 140 wholly owned
or joint-venture facilities in North America, India and China
distributing and processing both ferrous and nonferrous metals.
The 165-year-old company had sales of $5.9 billion last
Platinum Equity executives have declined to
talk about any possible plans for integrating PNA Group, which
distributes steel beams, plate and flat-rolled products, with
Ryerson. The group had annual revenue of about $1.2 billion
before Platinum Equity bought it from Germany's TUI AG in early
"We view this as a standalone company," a
Platinum Equity spokesman said of the Ryerson purchase.