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Reliance to buy Metals USA for $1.2B

Keywords: Tags  Reliance Steel & Aluminum, David Hannah, Metals USA Holdings, Lourenco Goncalves, acquisition, Jim Bouchard, Esmark, Norm Gottschalk Marmon/Keystone

CHICAGO — In a surprise move, Reliance Steel & Aluminum Co. and Metals USA Holdings Corp. have agreed to merge in a roughly $1.2-billion deal.

It is Reliance’s largest acquisition to date, and will give the Los Angeles-based distributor a 6- to 7-percent share of the U.S. service center market, chairman and chief executive officer David H. Hannah told investors during a Feb. 6 conference call.

The all-cash transaction—which has Reliance purchasing Metals USA shares at $20.65 each—is expected to close in the second quarter, at which point Reliance will hold total assets exceeding $6.5 billion with annual sales above $10 billion. Each company’s board of directors has already approved the deal.

Hannah will continue to lead the combined company, which will retain the Metals USA brand, while Metals USA chairman, president and chief executive officer Lourenco Goncalves will retire.

"Reliance is the benchmark of the industry, the biggest company," Goncalves told AMM. "Metals USA will be a great fit within their organization. For me, it’s rewarding that we built this company out of zero. We purchased it out of bankruptcy and built it to $2 billion (in revenue)."

The transaction is a "good value for stockholders" and good for Metals USA employees, Goncalves said. "Reliance has a history of treating employees well."

The acquisition of Fort Lauderdale, Fla.-based Metals USA, which operates 48 service centers in the United States, will be "an excellent fit and nicely complements our customer base, product mix and geographic footprint," Hannah said during the conference call.

The parties kept the deal well under wraps.

"I didn’t see that coming at all," Marmon/Keystone Corp. president Norman E. Gottschalk Jr. said. "The areas they (Metals USA) play in—fabrication, construction—that’s coming back, albeit slowly, so the timing is excellent. Reliance is a good company and (the merger) will stabilize the industry a little bit more. It gives them further critical mass. It’s another good move on Reliance’s part.

"I don’t see any negatives," Gottschalk added. "It’s a hell of a deal."

"It’s a great acquisition for Reliance and good for Metals USA’s shareholders. It creates quite a powerhouse in the United States," James P. Bouchard, chairman and chief executive officer of Sewickley, Pa.-based Esmark Inc., told AMM. "You will have to see larger competitors step up, as the industry is still fragmented."

Michael D. Siegal, chairman and chief executive officer of Bedford Heights, Ohio-based Olympic Steel Inc., said the market is responding positively to the merger. "I think it’s a great deal for both companies," he said. Generally, "it’s a pretty good environment for things to get done. The financing markets are wide open. The debt markets are open. To be able to finance deals, there are no restrictions."

Siegal said the purchase gives Reliance critical mass, but "from a competitive standpoint, if you provide service and value, a bigger competitor in your region should not matter."

The acquisition will immediately add to Reliance’s profits, according to Hannah, even without evaluating any potential synergies between the two companies.

Adding Metals USA will increase Reliance’s sales exposure to the carbon flat-rolled market, Hannah said. "We feel good about it." Metals USA has "a good flat-rolled business with solid margins. We looked into that, and we think it’s a good business going forward."

He does not expect Reliance will need to rationalize any of Metals USA’s facilities or sell off any of its assets.

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