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Steel Dynamics (STLD) to Acquire Heartland for $400 Million


Steel Dynamics, Inc. STLD has inked a definitive agreement to acquire Companhia Siderurgica Nacional, LLC (Heartland) from CSN Steel, S.L.U., for $400 million in cash (including $60 million of normalized working capital), subject to customary transaction purchase price adjustments.

The move is expected to increase Steel Dynamics' total shipping capability and annual flat roll steel shipping capacity to 12.4 million tons and 8.4 million tons, respectively. The additional exposure to lighter-gauge and greater width flat roll steel offerings will also expand its portfolio of value-added products, strengthening Steel Dynamics’ position as a leading steel producer in North American.

The deal has received all required corporate approvals from the respective parties. The company expects to obtain all necessary regulatory approvals and close the transaction before the end of third-quarter 2018, subject to customary conditions and receipt of regulatory approvals. The transaction is expected to be accretive to cash flow per share and near-term earnings.

Located in Terre Haute, IN, Heartland produces a range of higher-margin, flat roll steel by further processing hot roll coils into cold roll, pickle and oil and galvanized products.

Heartland has the capability to produce 1 million tons of cold roll steel annually, with galvanizing capacity of 360,000 tons. It has a continuous pickle line, a cold mill, and a galvanizing line. Moreover, its equipment is well-maintained, upgraded and in excellent operating condition. Historically, Heartland has primarily focused on galvanized products and has operated at low utilization rate. Future plans include utilization of the full capacity of the facility, providing high quality pickle and oil, cold roll and galvanized products.

Additionally, geographic proximity of Steel Dynamics' certain fabrication locations and other flat roll operations provides opportunities related to production and logistics efficiencies throughout the supply chain and customer network.

Steel Dynamics has outperformed the industry it belongs to over the past six months. The company’s shares have rallied 31.4% in this period compared with the industry’s 24.5% gain.

Steel Dynamics logged profit of $227.6 million or 96 cents per share in first-quarter 2018, marking a 13% increase from $200.8 million or 82 cents recorded a year ago. The results topped the Zacks Consensus Estimate of 91 cents.

The company gained from higher demand and pricing in the first quarter. Domestic steel demand remained strong across automotive and construction sectors while energy and general industrial demand improved.

Steel Dynamics expects the prevailing and expected macroeconomic and market conditions to benefit domestic steel consumption this year. Demand for steel in the domestic markets remains strong while demand and pricing have improved globally. The company expects price momentum and growth in steel demand to continue through 2018.

Steel Dynamics, Inc. Price and Consensus

Steel Dynamics, Inc. Price and Consensus | Steel Dynamics, Inc. Quote

Zacks Rank & Stocks to Consider

Steel Dynamics currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks worth considering in the basic materials space include The Chemours Company CC, Westlake Chemical Corporation WLK and Huntsman Corporation HUN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours has an expected long-term earnings growth rate of 15.5%. Its shares have gained 12.3% in a year.

Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have rallied 84.7% in a year.

Huntsman has an expected long-term earnings growth rate of 8.3%. Its shares have moved up 20.4% in a year.

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