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Nucor to acquire Southland Tube for $130M

Dec 06, 2016 | 10:44 AM | New York | Dom Yanchunas

Tags  Nucor, Southland Tube, structural tubing, hollow structural sections, M&A, John Montgomery, Dom Yanchunas


Nucor Corp. has agreed to acquire Southland Tube Inc. for $130 million, further solidifying the mini-mill operator as a major provider of structural tubing.

The sale price represents approximately eight times Southland's average earnings before interest, taxes, depreciation and amortization (Ebitda) between 2011 and 2016, Nucor said Dec. 6. Southland, with 280 nonunionized employs and 240,000 tons in annual volume, is the third-largest U.S. maker of hollow structural sections (HSS).

Nucor chairman, president and chief executive officer John Ferriola said in the Tuesday statement that the addition of the Birmingham, Ala., mill is an "excellent fit" for his company's "strategy for profitable growth." Nucor instantly became the second-largest provider of structural tubing only last month when it completed its acquisition of Independence Tube Corp. (amm.com, Nov. 2). 

"We see this market as a great opportunity to leverage Nucor's capabilities and strengths while also adding to our portfolio of products and services for our customers," Ferriola said.

Nucor said the two HSS acquisitions increase the percentage of steel that goes to its own downstream businesses to 20 percent, up from just 8 percent in 2006. 

The Charlotte, N.C.-based mini-mill's talks with closely held Southland occurred almost simultaneously with the negotiations with Independence, two people with knowledge of the discussions told AMM. Nucor decided to focus elsewhere when Southland president and chief executive John Montgomery's asking price was too high. After talks with another company didn't go anywhere, Nucor's own in-house merger advising team contacted Montgomery again. The renewed discussions led to more progress within the past month or two, the sources said.

Southland did not immediately return a request for comment. 

Nucor had said the sales price for Chicago-based Independence Tube was about six times Ebitda between 2013 and 2015.

Beginning with the night shift on the evening of Dec. 5, Southland officials began pulling employees aside and notifying them that Nucor was buying their tube mill, a source with knowledge of the matter told AMM

Market participants have speculated throughout 2015 and 2016 that cash-flush mini-mills, including Nucor and Steel Dynamics Inc., would take advantage of their strong financial positions to acquire downstream operations to which they could supply hot-rolled coil more predictably (amm.com, Sept. 6). So far the only aggressor has been Nucor, which already owned pipe and tube mill Skyline Steel LLC before the 2016 acquisition strategy.

After the Independence Tube deal, competing tube mills initially said they were confident that Nucor would continue to be a reliable supplier of coil. Another market participant recently told AMM, however, that some of those mills are being too complacent about that, and their relationship with Nucor is bound to become strained at some point.

The market participant said Nucor's tube-mill initiatives may be a shot across the bow to a debutante competitor, Osceola, Ark.-based Big River Steel LLC, which is about ship its first hot-rolled coil this month (amm.com, Nov. 17).

Nucor's foray into structural tubing may have been a factor in Zekelman Industries Inc., whose Atlas Tube Inc. division is the nation's largest maker of structural tubing, deciding to reopen its HSS mill in nearby Blytheville, Ark. (amm.com, Oct. 12).

Other tubing mills who are concerned about their future relationship with Nucor are forging supplier relationships with Big River, even just to hedge their bets, the market participant said.



 

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