Metals processor Reliance Steel & Aluminum Co. (RS) has agreed to acquire Metals USA Holdings Corp. (MUSA) for an enterprise value of about $1.2 billion, the two companies said Wednesday. Following the announcement of the deal, shares of Metals USA are gaining more than 12 percent in the regular trading session.
Under the deal, Los Angeles, California-based Reliance Steel will acquire all outstanding shares of Fort Lauderdale, Florida-based Metals USA for $20.65 per share in cash. The offer price represents a 13 percent premium to Metals USA's closing stock price of $18.30 on Tuesday. Based on Metal USA's 37.1 million shares outstanding as of December 31, 2012, the deal is valued at $766.12 million.
The transaction, which has been approved by the boards of directors of both companies, is expected to close in the second quarter of 2013. However, the deal requires the approval of Metals USA stockholders, and includes a 30-day "go-shop" period. Metals USA can solicit alternative buyout offers from third parties through March 8, 2013.
Investment funds affiliated with Apollo Global Management, LLC (APO), which own about 53 percent of the outstanding shares of Metals USA, have agreed to vote in favor of the merger.
David Hannah, chairman and chief executive officer of Reliance, will continue as chairman and CEO of the combined company. Lourenco Goncalves, chairman, president and CEO of Metals USA, will retire upon closing of the transaction.
Commenting on the deal, Hannah said, "This is our largest acquisition to date and will add a total of 48 service centers strategically located throughout the United States to our existing operations. Metals USA is an excellent fit and nicely complements Reliance's existing customer base, product mix and geographic footprint."
Reliance Steel expects the transaction to be accretive immediately upon closing and plans to operate Metals USA under its current brand names.
Metals USA's assets at December 31, 2012 and sales for the year then ended were about $1 billion and $2 billion, respectively. Upon completion of the acquisition, Reliance Steel will have total assets of over $6.5 billion and annual sales of over $10 billion.
Reliance Steel expects to fund the transaction and refinance Metals USA's existing debt from Reliance's existing $1.5 billion credit facility, together with funds from accessing the bank credit markets and debt capital markets.
Separately, Metals USA reported a 74 percent plunge in profit for the fourth quarter on lower revenue. The company noted that during the quarter, the market continued to be impacted by too much steel chasing too few orders.
The company's net income for the fourth quarter was $3.7 million or $0.10 per share, down from $14.0 million or $0.37 per share in the year-ago period.
Excluding items, adjusted earnings per share for the latest quarter were $0.23. On average, 14 analysts polled by Thomson Reuters expected the company to report earnings of $0.30 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter declined 4 percent to $437.5 million from $455.7 million in the same period last year. Analysts had a consensus revenue estimate of $455.68 million.
Shipments for the quarter were 353 thousand tons, 8 percent higher than the 327 thousand tons shipped during the year-ago period.
For fiscal 2012, Metal USA's net income declined to $52.7 million or $1.41 per share from $64.6 million or $1.73 per share in the prior year. Adjusted earnings for the year were $1.55 per share. Net sales for the year rose 5 percent to $1.98 billion from $1.89 billion last year.
Analysts expected the company to report earnings of $1.62 per share for the year on revenues of $2.00 billion.
Metal USA's board of directors declared a regular quarterly cash dividend of $0.06 per share. The dividend will be paid on March 12 to stockholders of record as of the close of business on February 26.
In Wednesday's regular session, RS is trading at $70.09, up $5.40 or 8.35 percent on a volume of 622,313 shares. MUSA is trading at $20.60, up $2.30 or 12.57 percent on a volume of 1.88 million shares.
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