Steelmaker Nucor Corporation (NUE - Analyst Report) has announced that it is going to acquire Skyline Steel, a leading steel foundation distributor, and its subsidiaries from ArcelorMittal (MT - Analyst Report) for roughly $605 million. Nucor has penned a Stock Purchase Agreement for buying out the membership interests of Skyline Steel from ArcelorMittal. Following the deal closure, Skyline Steel will be Nucor’s wholly owned subsidiary and will function out of its existing headquarters in Parsippany, New Jersey.
Skyline Steel has been distributing Nucor’s piling products for over 20 years and has been a key customer of H-piling and hot rolled sheet piling from Nucor-Yamato Steel. Through the acquisition, Nucor aims to integrate Skyline into its system and make it a more valuable downstream customer of coiled plate and sheet products. In addition, Nucor expects that the technological knowhow of both the companies will help them come up with innovative solutions for the construction industry.
Skyline has an impressive distribution network, well complemented by exceptional customer service and technical back-up. The company has 21 sales offices and a strong infrastructure comprising of a large number of stocking sites, a robust supply chain and a number of processing and fabrication facilities.
Skyline’s distribution network serves the U.S., Canada, Mexico and the Caribbean, providing solutions for application in heavy civil construction, marine construction, underground commercial parking, storm protection, bridge and highway construction and environment containment projects in the infrastructure and construction industries. Thus, it appears that Nucor has made a smart move towards inorganic growth since Skyline’s excellent network will enable it to expand its presence in North America.
Nucor should not face much of a problem financing the deal. The company had cash and cash equivalents of $1.18 billion as on March 31, 2012, and also has a revolving credit facility of $1.5 billion which will expire in December 2016.
Nucor said that Skyline has been valued in accordance with present marketplace valuations of publicly traded steel distributors. It expects the acquisition to be accretive in the next fiscal year. Also, Skyline will continue to exclusively distribute ArcelorMittal's piling and foundation products in North America and the Caribbean. The transaction is subject to the required regulatory approvals and will close once the approvals are received and other closing conditions are satisfied.
Nucor Corp. faces stiff competition from Commercial Metals Co. (CMC - Snapshot Report) and United States Steel Corp. (X - Analyst Report). We currently have a long-term Neutral recommendation on the company. The stock holds a short-term Zacks #4 Rank (Sell).