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Nucor said in lead to acquire Big River

Aug 23, 2018 | 03:23 PM | Chicago | Michael Cowden

Nucor Corp has emerged as the front runner to acquire Big River Steel, assuming its newer rival is really looking to sell, sources familiar with the matter said.

Bids for the Osceola, Arkansas-based mini-mill flat-rolled steelmaker are due the first week of September, sources said.

The target date for a deal might be Sunday September 30 but that would not preclude the possibility of a transaction concluding significantly ahead of that deadline, some sources said.

But it is too early to say that the bidding process will result in the mill changing hands, other sources noted.

It is possible that Big River Steel’s stakeholders might be accepting offers for the company with the primary intent of establishing market value rather than to sell the company outright, these source said.

One reason is that one of the minority stakeholders might be looking to sell their share, sources said.

Also, Big River might fetch more than the $3-billion price that has been floated after confirming plans to double its capacity in Osceola and build a new mill in Brownsville, Texas, along with a rumored plan to conduct an initiation public offering, they added.

Big River Steel might be worth $5 billion based on the 6.6 million tons of steelmaking capacity it would have once the Osceola mill doubles capacity in 2019 – something that will allow it to expand into high-value electrical steels – and should it build a similar mill in Brownsville in 2021, John Tumazos, president of John Tumazos Very Independent Research, wrote in a research note earlier this month.

And the company might also be worth more when Section 232 quotas and tariffs - which have encouraged idled US steelmaking capacity to restart - are no longer in effect, Tumazos added.

“We believe Big River Steel would enjoy a larger competitive advantage in bad markets, where competitors fail and its superior profitability would be more unique,” he wrote.

A Big River spokeswoman did not confirm or deny a potential sale of all or part of the company or a potential IPO.

“Big River Steel has built and is operating one of the world's most technologically advanced steel mills. We continue to establish new production records and reach new product development milestones. It is not surprising that others are talking about our progress,” she said in an email to American Metal Market on August 23, reiterating a statement from earlier this month.

Nucor in the lead, for now
While Nucor might be the front runner, at least five entities have been involved in the bidding process.

American Metal Market reported earlier this month that Nucor, Steel Dynamics Inc (SDI) and Posco - the latter perhaps via a joint bid with U.S. Steel Corp - were involved in a potential acquisition of Big River Steel.

Also participating in the process are London-based Liberty House Group and financial interests, sources said.

Liberty House in June reopened a wire rod mill in Georgetown, South Carolina, that ArcelorMittal USA had closed about three years earlier.

That mill, now named Liberty Steel Georgetown, is the first project in a “large-scale” investment program in American metals and industrial assets by GFG Alliance - an industrial conglomerate in the United Kingdom and parent company of Liberty House.

Liberty House, for example, has earmarked more than $5 billion in US investments. The company has already expanded into the southeastern scrap business with the acquisition of Florida recycler Export Metals LLC.

All told, GFG Alliance is seeking 5 million tons per year of steel capacity in the US within the next two to three years via acquisitions and restarting dormant brownfield facilities, executive chairman Sanjeev Gupta told American Metal Market in June.

The company probably wants 2-3 million of those tons to be flat-rolled steel, sources said.

SDI, Liberty House and U.S. Steel all declined to comment. Nucor and Posco did not respond to American Metal Market's requests.

Deal or no deal?
It is also possible that one of the minority shareholders in Big River Steel is interested in selling its stake in the company after doubling its original investment due to strong steel market conditions, sources said.

Big River Steel sold its first coil to Zekelman Industries Inc, a structural tube producer, in December 2016.

American Metal Market’s hot-rolled index stood at $44.47 per hundredweight ($889.40 per ton) as of 3 pm Eastern time on August 23, up 48.2% from $30 per cwt when the sale to Zekelman was announced and more than double the $18 per cwt that prevailed in December 2015 when Big River Steel started finishing operations.

Big River Steel is 40% owned by Koch Minerals LLC, a dry-bulk commodities handler that is part Koch Industries Inc - one of the biggest private companies in the United States. San Francisco-based private equity firm TPG Capital LP owns 20% and the Arkansas Teacher Retirement System pension plan owns another 20%.

Global Principal Partners LLC, a Miami-based investment firm where Big River Steel chief executive officer David Stickler is managing director, and the estate of former Big River Steel chairman and CEO John D. Correnti own the remaining 20% - although a portion of that stake has been sold to the family fund of businessman Ross Perot.

Perot ran as a third-party candidate for US president in 1992.

TPG declined to comment. The Arkansas Teacher Retirement System, Global Principal Partners and Perot Investments Inc did not respond to American Metal Market's requests.

"As a private company, Koch doesn’t respond to questions about deals, or rumors of deals, that we may or may not be involved in," a Koch spokesman told American Metal Market in an email on Friday August 24.

Dom Yanchunas, New York, contributed to this article.

Editor's note: This article was updated on August 24, 2018, to include comments from Koch Minerals LLC.