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 purchase price.
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 problems.
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 year.
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 2006.
"We view this as a standalone company," a Platinum Equity spokesman said of the Ryerson purchase.