PITTSBURGH Yalian Steel Corp. chairman Xin Duo Yu plans to take over the company as the steel line pipe maker grapples with a lack of orders and high debt.
The Vancouver, British Columbia-based company, which operates a longitudinal submerged-arc-welded (LSAW) pipe mill in China, said that Yalians board had unanimously approved the "friendly insider bid."
Under the terms of the deal, Yalian will be acquired by 0957703 B.C. Ltd., a newly incorporated firm in British Columbia wholly owned by Yu and created as the bid vehicle for the offer to acquire Yalian for Canadian $0.40 (40.24 cents) per share. Yu already holds 14.74 percent of the issued and outstanding common shares of Yalian.
The offer price is less than the C$0.42 to C$0.43 (42.26 to 43.27 cents) per-share value Vancouver investment bank Evans & Evans Inc. ascribed to Yalian as of Nov. 30, but Yalian said shareholders supporting the deal have acknowledged that the company is "facing a significant debt load, with interest outstripping a significant portion of earnings."
A risk of not meeting its revenue and earnings targets due to "no new orders" combined with its working capital position and the risk it faces of not being able to renew loans could mean that it would struggle to fund future operations, and the value of the company likely has declined since the Evans & Evans evaluation, Yalian said.
Yalian said it reserves the right to respond to superior offers, but 0957703 B.C. has the right to match any better offer.
Several North American steel industry figures have worked with Yalian, including former Russel Metals Inc. chief executive officer Edward "Bud" Siegel Jr., who resigned as Yalians acting chief executive officer in 2010 (amm.com, May 19, 2010).