CHICAGO Steel Dynamics Inc. (SDI) is mulling an acquisition of electric-arc furnace hot-rolled coil producer Gallatin Steel Co., according to market sources.
The Fort Wayne, Ind.-based steelmaker has a slightly dampened but still strong appetite for acquisitions despite its deal to buy Dearborn, Mich.-based Severstal North America Inc.s mini-mill in Columbus, Miss., for $1.6 billion (amm.com, July 21), market sources said.
But while SDI is kicking the tires at Ghent, Ky.-based Gallatin, it has yet to look under the hood to do full due diligence, they said, and at least one other domestic steelmaker also may be in the running for Gallatin.
Brazilian steel and iron ore producer Cia. Siderúrgica Nacional SA has already expressed interest in purchasing Gallatin, a 50-50 joint venture between Chicago-based ArcelorMittal USA Inc. and Tampa, Fla.-based Gerdau Long Steel North America (amm.com, Aug. 12).
Gerdau declined to comment, while SDI and ArcelorMittal did not respond to requests for comment.
Gallatin president Tobin Pospisil said Aug. 25 that his company would not comment on "market speculation."
Potential asking prices for Gallatin vary widelyfrom $400 million to $700 million, according to market sourcesalthough most observers suggested a figure in the middle of that range was most likely.
Buying Gallatin would make sense for SDI, given its location near the Ohio River, which would allow SDI to better participate in pipe and tube marketslarge consumers of flat-rolled steel. It also would give SDI a potential platform to provide cold-rolled full-hard substrate to The Techs, SDIs galvanizing operations in and near Pittsburgh, market sources said.
Pittsburgh-based U.S. Steel Corp. and other domestic mills have supplied cold-rolled full-hard substrate to The Techs, but SDI has nonetheless for years mulled a presence on the Ohio River in part to bolster its supplies to the The Techs (amm.com, May 10, 2011). However, SDI would have to add a cold mill to Gallatins existing operations in order to supply The Techs, market sources said.
Some market sources argued that a sale of Gallatin was a near certainty since the mill is no longer a core asset to Gerdau, given its focus on long products in North America, or ArcelorMittal, given the Luxembourg-based steelmakers acquisition with Japans Nippon Steel & Sumitomo Metal Corp. of AM/NS Calvert (amm.com, Feb. 26).
But others questioned whether Gallatins owners would jump at a sale unless they receive what they consider to be a fair price. They also noted that it is still early in the sales process, with Gallatin to date soliciting only preliminary, nonbinding expressions of interest, market source said. Gallatin would like to have those offers this week, they said.