Gerdau Ameristeel pays $170 M for Sand Springs-based Sheffield Steel

Journal Record, The (Oklahoma City), Apr 6, 2006 by Kirby Lee Davis

Growing steel producer Gerdau Ameristeel will acquire Sheffield Steel Corp. of Sand Springs for about $170 million.

I see nothing but positive in this for the employees and the company, said Tom J. Landa, vice president and chief financial officer for Gerdau. Noting this will become his company's western- most mill, serving Southern and Western markets new to Gerdau, Landa expects his company to remodel and increase Sheffield Steel's facilities as it helps grow the business this decade.

We will probably put capital into the mill, he said. There will be no employee reduction or anything like that. They've got a good management team. What you see there today is what you'll largely see a year for now.

Sheffield, which employs more than 370 in Sand Springs, announced the definitive agreement Wednesday. Gerdau will acquire all outstanding Sheffield shares for an estimated $76 million in cash plus the assumption of $94 million of debt and certain long-term liabilities, net of cash.

Subject to shareholder approval and other conditions, the deal should close in the second quarter. That may lead to a name change, Landa said, but other operations should continue as normal.

The combination of the Sheffield team with Gerdau Ameristeel is a dynamic step in the continuing consolidation and revitalization of the North American long-product steel sector, said Mario Longhi, Gerdau president and chief executive, who took the CEO post in January. The addition of the Sheffield people, resources and assets will expand Gerdau Ameristeel's primary rebar markets to the Southwest United States.

Based in Tampa, Fla., Gerdau Ameristeel (www.gerdauameristeel.com) is the fourth-largest overall steel company and the second-largest minimill steel producer in North America. Majority owned by the century-old The Gerdau Group of Brazil, the steelmaker claims annual manufacturing capacity of more than 8.4 million tons of mill-finished products.

A minimill producer of long, steel products, primarily rebar and merchant bars, Sheffield Steel produces about 550,000 tons of finished steel merchandise. It operates a melt shop and rolling mill in Sand Springs, a smaller rolling mill in Joliet, Ill., three downstream steel fabricating facilities in Kansas City and Sand Springs, where it also produces railroad spikes.

The company also owns the Sand Springs Railway, which connects the city's industrial corridor to Tulsa.

Sheffield President and CEO James Nolan said the deal creates growth opportunities, taking advantage of Gerdau Ameristeel's reputation and financial strength.

Under the leadership of Gerdau Ameristeel, the combined organization will have additional resources and capabilities with which to service our existing customers, as well as the expanding Southwestern markets, he said.

That comes above the growth Sheffield enjoyed in its third fiscal quarter, when rebar sales rose 125 percent, doubling shipments even as prices rose 11 percent. Fabricated product sales increased 30 percent over a year ago, with shipments rising 19 percent despite a 9-percent price hike.

Over the nine months ended Jan. 31, Sheffield's rebar sales jumped 36 percent, though hot-rolled bar sales fell 3 percent and fabricated product sales rose 19 percent. The average cost of sales per ton fell 4 percent from a year ago.

Sheffield ended that nine-month period with 36.2-percent profit growth to $19.6 million, its total sales up 17.26 percent to $252.18 million.

It's had good leadership for the last three or four years, Landa said of Sheffield. We don't question any of their strategies. We'll basically look to the existing management team and the employees to carry on.

That includes labor talks. United Steelworkers have been in negotiation with Sheffield for months over a new contract. The workers have authorized a strike, though talks continue.

Gerdau is known for taking hard stands in its labor negotiations. On May 26, the company suffered a work stoppage at its Beaumont, Texas, mill in a move to encourage a new labor agreement. Operations resumed on Dec. 12 even though a final contract has not been concluded.

We'll do what's best for our business, Landa said of the Sheffield talks, adding, We don't get into these things with plans for a work stoppage.

Oklahoma manufacturers have struggled to grow jobs since 2001, though Oklahoma State University economist Mark Snead has seen signs of that bottoming out. Sheffield remains a survivor, emerging from bankruptcy in 2002 as the only steel-making plant in Oklahoma.

Wednesday's announcement represents the third acquisition announced by Gerdau over the past month. On March 14, the company announced its acquisition of the assets of Callaway Building Products of Knoxville, Tenn., a rebar manufacturer serving its region for more than 45 years. Gerdau acquired Fargo Iron and Metal Co. of Fargo, N.D., which had a century-old heritage in steel service.

Funding its growth in part was the 85-percent expansion of Gerdau's senior secured credit facility in October to $650 million, taking advantage of lowered interest rates.