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Reliance-Metals USA merger follows years of discussions

Keywords: Tags  Reliance Steel & Aluminum, David Hannah, Metals USA, Apollo Fund, M. Ali Rashid, merger talks, share price negotiations, corinna petry

CHICAGO — The proposed merger of Reliance Steel & Aluminum Co. and Metals USA Holdings Corp. came about after several years of discussions between Reliance chairman and chief executive officer David H. Hannah and Metals USA director M. Ali Rashid about service center industry dynamics.

Once they agreed it was a strong idea, the price was negotiated upward five times before the $1.2-billion—$20.65 per share—offer was accepted in February (, Feb. 6), according to background laid out in the preliminary proxy statement filed by Metals USA.

Over the past few years, Hannah and Rashid, who is also a senior partner of an affiliate of the Apollo Fund, which owns approximately 53 percent of Metals USA’s outstanding shares, talked from time to time about developments in the industries in which both companies participate "and about Reliance’s theoretic interest in a possible strategic transaction."

Those conversations were casual until Nov. 7, 2012, when Hannah called Rashid to discuss doing a deal. The first offer was $17.75 per share. Two days later, Rashid told Hannah the offer was insufficient, and Hannah raised the offer to $18.50 per share and requested preliminary due-diligence information.

Metals USA’s board of directors determined Nov. 11 that the revised proposal still did not represent sufficient value. Reliance raised the offer Nov. 14 to $19.10 per share and Metals USA’s directors agreed to share limited due-diligence information because they were confident that would result in a higher offer, and the two companies signed a confidentiality agreement Nov. 16.

By Dec. 10, Reliance had raised its offer to $19.30 per share but Rashid said the board would probably expect more. After in-depth reviews with its bankers, Metals USA agreed to furnish to Reliance initial drafts of a merger agreement that included Reliance’s condition that Apollo Funds would vote its shares in favor of the merger and Metals USA’s condition that it have some time to solicit superior offers.

In mid-January, Rashid told Hannah "that an additional increase in proposed value would be necessary before Metals USA would agree to a transaction with Reliance." On Jan. 17, Hannah raised the offer to $20.50 per share "but indicated that Rashid should not expect any further material price increase."

On Jan. 30, members of Metals USA’s and Reliance’s management teams met, together with their bankers, for due diligence-related management presentations. Rashid and Hannah also met separately. Rashid sought a further share price increase, and Reliance provided a final bid of $20.65.

By Feb. 6, Metals USA’s advisors judged the agreement as fair and in the best interest of shareholders. The board has unanimously recommended that Metals USA’s shareholders vote in favor of the proposal to adopt the merger agreement, according to the proxy statement.

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