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Big River Steel's IPO chances said down

Oct 09, 2018 | 05:51 PM | Michael Cowden

Tags  Big River Steel, IPO, M&A, Nucor, HRC index, zorba, aluminium scrap, steel prices flat-rolled


CHICAGO — Big River Steel may be less likely to conduct an initial public offering (IPO) and could sell for less than previously expected due to decreased valuations for its steel and metal assets, according to both financial sector and steel industry sources.

Pricing woes
Another potential steel IPO - that planned by Zekelman Industries - was officially postponed on September 20, after it became clear that investors did not concur with the company's estimate of its valuation. And other deals, including proposed mergers and acquisitions, have faced delays because of lower valuations, sources said.

Such issues have been most pronounced in the non-ferrous scrap market, where shredders that used to make zorba for the export market have lost value because of declining prices. This is a result of tensions with China and an ensuing supply-demand imbalance, sources noted.

Aluminium scrap prices are at their lowest point in more than nine years. And looking back, sources speculated that owners of non-ferrous scrap assets might have been better off concluding deals six months ago.

Steel prices, on the other hand, remain up year on year despite falling from recent highs. Fastmarkets AMM’s hot-rolled coil index stands at $41.28 per hundredweight ($825.60 per short ton), up 39.8% from $29.52 per cwt a year ago and down 9.9% from a July peak of $45.84 per cwt.

IPO outlook
Still, Big River is unlikely to sell for more than $3 billion, the rumored price heard this summer. Under current market conditions, a deal is more likely to be made at approximately $2.5 billion, according to sources.

With an IPO possibly off the table, Big River is more likely to be scooped up by a strategic buyer, such as another steel mill. Sources added that Nucor, the largest steelmaker in North America, remains in the lead to buy the company.

A deal could be announced by the end of the month and could be concluded by the end of the year. All that’s left is for the parties to complete due diligence, some sources said.

But others urged caution, noting that the longer the sales process drags on, the higher the chances of a deal falling apart. They also pointed out that Nucor has already undertaken a host of big projects. Adding Big River to that list might prove challenging even for a large company with a strong balance sheet.

Nucor has announced more than $1-billion worth of expansions over the past year.

The steelmaker announced plans in November 2017 to build a $250-million reinforcing bar micro-mill in Kansas City, Missouri; in March it rolled out plans to spend $240 million to build a rebar micro-mill in Frostproof, Florida; and the company last month unveiled a $650-million expansion of its flat-rolled steel mill in Ghent, Kentucky.

Nucor has also undertaken a "top-to-bottom" review of its outage-plagued direct-reduced iron (DRI) plant in Louisiana. The price for any updates to the facility, should Nucor choose to make them, could be high, some sources speculated.

A Nucor spokeswoman did not confirm or deny potential interest in Big River Steel. "Like most companies, we are constantly evaluating unique market opportunities. If the right opportunity comes along, it has to fit our long-term growth strategy and provide the right return on the investment of our shareholders' valuable capital," she said in an email to Fastmarkets AMM on Tuesday October 9.

The Nucor spokeswoman said the company had "nothing to share at this time" regarding its DRI plant in Louisiana.

Big River Steel declined to comment on either a potential IPO or a potential sale. “Big River Steel continues to outperform by all measures in terms of both product capabilities and financial performance," a company spokeswoman said via email. "The company does not comment on specific strategic alternatives under consideration.” 

Michael Cowden



 

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