Roanoke Electric Steel to acquire steel of West Virginia for 27.1 times earnings

Weekly Corporate Growth Report, Nov 16, 1998

The Deal: Roanoke Electric Steel has agreed to buy Steel of West Virginia for $116.7 million, or $10.75/share. Through the merger, SMVA will become a wholly owned subsidiary of Resco, and each share of SWVA common stock not purchased in the offer will be converted into the right to receive the cash price paid per share in the offer. On the news, stock of Steel of West Virginia shot up $4, or 62%, $10.375/share, while Roanoke Electric Steel fell 12.5 cents, to $14.125/share.

Discussion: In early 1997, Steel of West Virginia fought off a takeover bid by a competitor, JPT. The new deal offers an excellent strategic fit for Roanoke Electric Steel. It will expand its range of products and broaden its sales. The deal is expected to be immediately accretive to earnings per share.

SWVA operates a mini-mill in Huntington, West Virginia, and steel fabrication facilities in Huntington and Memphis, Tennessee. The company custom designs and manufactures special steel products principally for use in the construction of truck trailers, industrial lift trucks, off-highway construction equipment (such as bulldozers and graders), manufacturing housing, guard rail post, and mining equipment. The two companies do not generally compete customers and products.

Roanoke was founded in 1955 and manufactures, fabricates and markets merchant steel products, billets, open web steeljoists and reinforcing bars. 1997 saw the company's second best year ever in terms of profits and sales. The company has a main plant in a mini-mill located in Roanoke, Virginia. It also has four subsidiaries that are involved in various steel-related activities.