The Russian steelmaker Novolipetsk Steel (NLMK) has signed a definitive agreement with a shareholder group including global private equity firm The Carlyle Group and the Zekelman family for the acquisition of their US-based steel pipe and tube manufacturer John Maneely Company (JMC).
The acquisition will be made on a debt free, cash free basis, for an estimated US$3.53 billion, while the transaction is subject to customary regulatory approvals and is expected to close in the fourth quarter of 2008.
JMC is the largest independent tubular manufacturer in North America, operating eleven plants in five US states and one Canadian province with a total production capacity of more than three million mt of steel pipe and tube per annum and with the most diverse product platform in the North American pipe and tube industry.
Through its Wheatland and Atlas Tube divisions, it maintains a number one market position in North America in each of its three core product categories: hollow structural sections (HSS), standard pipe and electrical conduits.
The acquisition is in line with NLMK's strategy of portfolio diversification and downstream integration in the core markets of the company, and it will allow the strengthening of NLMK's position in North America and the provision of an entry point into an important and high margin end market.
Moreover, NLMK has already two US-based manufacturing facilities, Sharon Coating and Duferco Farrell Corp. The latter of these facilities is currently the key supplier of HRC to JMC and, in particular, the largest supplier of HRC to JMC's Wheatland division, to which it is closely located. Thus, NLMK will be able to extract synergies, estimated to be around US$35 million per annum, from the vertical integration of its steel assets in North America with JMC's low cost processing capabilities.
The transaction will be financed from available bank commitments, including the recently established US$1.6 billion pre-export finance (PXF) facility and a US$2.0 billion bridge commitment provided by Merrill Lynch, Deutsche Bank and Societe Generale.
NLMK plans to hold an investor call to discuss the transaction.