Russel Metals and Marubeni-Itochu merge Canadian OCTG and line pipe businesses

Thursday, 15 April 2021 19:53:19 (GMT+3)   |   San Diego
       

Toronto, Ontario-based Russel Metals Inc. announced that it has entered into an agreement with Marubeni-Itochu Tubulars America Inc. (MITI), whereby Russel Metals and MITI will combine their respective Canadian OCTG/line pipe businesses. In conjunction with the combination, Russel Metals will receive a substantial portion of its contributed net asset value in cash proceeds, in addition to retaining a 50 percent equity interest in the combined venture.

Currently, Russel Metals operates its Canadian OCTG/line pipe business through its wholly owned subsidiary Triumph Tubular & Supply Ltd. (Triumph), and MITI operates its Canadian OCTG/line pipe business through its wholly owned subsidiary Hallmark Tubulars Ltd. (Hallmark). The combined business of Triumph and Hallmark will operate under a newly incorporated company, named TriMark Tubulars Ltd. (TriMark).

In a press release, Russel Metals said that over the past several years, the macro business conditions for the OCTG/line pipe industry have changed substantially as a result of a challenging energy market as well as the disintermediation of distributors by certain direct-to-market manufacturers. As a result, the company said this combination will create a business that has the necessary economies of scale, including a diverse product offering and business platform to efficiently and effectively serve its customers.

Russel Metals will contribute net assets with a book value of approximately $111 million, subject to adjustments, primarily comprised of Triumph's inventories less its accounts payables. As consideration, Russel Metals shall receive: cash of approximately $79 million, subject to closing working capital adjustments; (preferred shares with a face value of $32 million and an annual dividend rate of 7 percent; and a 50 percent equity interest in TriMark.

In addition, Russel Metals will retain Triumph's accounts receivables which totaled $59 million at March 31, 2021, which when combined with the closing cash consideration of $79 million will result in a near term cash realization of approximately $138 million. For the year ended December 31, 2020, Triumph generated revenues of $165 million and an operating loss of $3 million. For the three years ended December 31, 2020, Triumph generated average annual revenues of $267 million and an average annual operating profit of $10 million.

The transaction is subject to customary regulatory and closing conditions and is expected to close in the second or third quarter of 2021.


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