Metals - Brazil

Gerdau, Co-Steel to merge North American assets

Gerdau, Co-Steel to merge North American assets

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Brazilian long steel group Gerdau (NYSE: GGB) announced Tuesday plans to merge its North American assets with Canadian steel company Co-Steel (TSX: CEI).

The merger, valued at around Cdn$600mn (US$380mn) and resulting in a company with estimated revenues of US$1.7bn/y, will combine the firms' complementary operations and increase their product mix, the two said in a joint statement.

"The combined strengths and compatible cultures of these companies provide the nucleus for realization of a shared vision of a world-class steel enterprise that can compete in today's global market," said Terry Newman, president and CEO of Ontario-based Co-Steel.

The merger will be carried out as a "reverse takeover." First Co-Steel will issue 146 million common shares to acquire Gerdau's steel holdings in North America. These include Gerdau Courtice Steel, based in Cambridge, Ontario; Gerdau MRM Steel, based in Selkirk, Manitoba; and AmeriSteel, based in Tampa, Florida.

After completion of the transaction, Co-Steel will be renamed Gerdau AmeriSteel Corporation. Existing Co-Steel shareholders will own 26% of the outstanding shares of the new company and Gerdau will retain the other 74%. The common shares of Gerdau AmeriSteel, a total of 198 million, will trade on the Toronto bourse.

"For Gerdau, this merger represents an important step in the unification of its holdings and a substantial increase in the company's commitment to the attractive North American market. The unification of two quality organizations with comparable traditions and corporate images is an exciting event and a positive step towards a brighter future," said Jorge Gerdau Johannpeter, the group's chairman.

"Through a combined network of 11 mills with annual manufacturing capacity

in excess of 6.8Mt of finished steel products, Gerdau AmeriSteel will be able to strategically service long product customers throughout eastern North America, resulting in improved operating efficiencies," read the joint statement.

Operating synergies will result in US$23mn in cost savings without any major investment, the Canadian company said.

Armando Franco, a steel analyst for Brazilian consulting firm Tendencias, said the merger was a positive move for Gerdau. "Along with rationalizing operations, the two companies are also complementary in the fact that they both produce steel using scrap material," he told BNamericas.

The merger is scheduled to be completed in the final quarter of this year after approvals from shareholders, creditors and regulatory officials.

Co-Steel manufactures and markets merchant bar, structural shapes, reinforcing bar, wire rod and flat rolled steel used principally in the construction, automotive, appliance, machinery and equipment industries.

Porto Alegre-based Gerdau is the largest long product steel maker in the Americas, with operations in Brazil, Canada, the United States, Argentina, Uruguay and Chile, and installed capacity of 11Mt.