The BlueScope Steel Ltd (ASX: BSL) share price jumped 17% after receiving a takeover bid from SGH Ltd (ASX: SGH).
BlueScope Steel is a large steel manufacturer with a presence in both Asia Pacific (namely Australia) as well as North America.
SGH is a diversified industrial company – WesTrac is one of the largest Caterpillar dealers globally. It also owns Coates, boral, almost a third of Beach Energy Ltd (ASX: BPT) and 40% of Seven West Media Ltd (ASX: SWM).
SGH bid for BlueScope Steel
ASX share SGH and NASDAQ-listed Steel Dynamics have submitted a non-binding indicative offer to acquire the whole of BlueScope Steel.
If the offer is accepted, SGH would own the Asia Pacific operations and Steel Dynamics would take the North American operations.
SGH pointed out that its offer of A$30 per BlueScope Steel share is a 27% premium to the closing price as of the submission of the offer. However, at today’s pre-open price that premium has reduced to less than 23%.
SGH said the offer is subject to a number of conditions including satisfactory due diligence and other customary ones.
The bidders believe BlueScope’s independent operations Australia and Asia Pacific, and North America, are “not strategically compatible and would benefit as standalone businesses under new ownership”. SGH would support the local operations with capital, industrial backing and its operating model.
SGH and Steel Dynamics plan to use debt to fund the proposed acquisition.
BlueScope response
Yesterday evening, the steelmaker said its management and advisers are considering and evaluating the proposal.
The BlueScope board said they want to optimise value for shareholders and regularly assesses all options to accelerate realisation of this value. It noted it has rejected offers of $27.50 and $29 per share previously, as well as an offer by Steel Dynamics of $24 per share for the North American business (and suggesting the rest of the business is worth at least $9 per share) – that suggests a $33 BlueScope share price offer in total.
BlueScope noted it rejected those previous approaches because it “significantly undervalued BlueScope and its future prospects”. With an offer of $30, this is close to 10% lower than a previous offer that BlueScope had already rejected. The company also pointed out a number of other considerations.
BlueScope notes that it generates resilient earnings and is “poised for upside from the delivery of cost and productivity improvements and a return to mid-cycle spreads.”
It’s expecting a material increase in cash flow as the current capital pipeline is completed, working capital is released and proceeds are received from the recent India and West Dapto transactions.
BlueScope also noted that $2.3 billion has been invested and should lead to sustainable earnings and growth, which will deliver a targeted $500 million per year in additional earnings by 2030.
It also has significant value in its 1,200 hectares of land holdings, which is now being rezoned, developed and monetised.
Final thoughts on the BlueScope Steel share price
The market is recognising that there’s more value in the steel manufacturer, but the board seem likely to reject this offer based on everything they highlighted in the initial market announcement about this.
I’m not sure what size of offer it would take to get a deal done, but it may be too much of a premium to make the deal worth it for the bidders. If I were a shareholder, I wouldn’t sell yet – it’s possible SGH and Steel Dynamics may come back with a larger offer.
Even so, there are other ASX growth shares that look more appealing to me.
