Nucor will acquire Southland Tube for $130m

Nucor Corp has agreed to acquire Southland Tube Inc for $130 million, further solidifying the mini-mill operator as a major provider of structural tubing.

The sale price represents approximately eight times Southland’s average earnings before interest, taxes, depreciation and amortisation (Ebitda) between 2011 and 2016, Nucor said on Tuesday December 6.

Southland, with 280 non-unionised employees and production of 240,000 tpy, is the third-largest US maker of hollow structural sections (HSS).

The addition of the mill is an “excellent fit” for his company’s “strategy for profitable growth”, Nucor chairman, president and ceo John Ferriola said in a statement.

Nucor became the second-largest provider of structural tubing only last month when it completed its acquisition of Independence Tube Corp.

“We see this market as a great opportunity to leverage Nucor’s capabilities and strengths while also adding to our portfolio of products and services for our customers,” Ferriola said.

The two HSS acquisitions increase the percentage of steel that goes to its own downstream businesses to 20%, up from just 8% in 2006, Nucor said.

The US mini-mill’s talks with closely held Southland occurred almost simultaneously with the negotiations with Independence, two people with knowledge of the discussions told Metal Bulletin sister publication AMM.

Nucor decided to focus elsewhere when Southland president and ceo John Montgomery’s asking price was too high. But after talks with another company did not go anywhere, Nucor’s own in-house merger advising team contacted Montgomery again. The renewed discussions led to more progress within the past month or two, the sources said.

Southland did not return a request for comment at the time of wriiting.

Nucor had said the sales price for Chicago-based Independence Tube was about six times Ebitda between 2013 and 2015.

Southland officials began notifying employees on the night shift on the evening of December 5 that Nucor was buying their tube mill, according to a source with knowledge of the matter.

Market participants have speculated throughout 2015 and 2016 that cash-flush mini-mills, including Nucor and Steel Dynamics Inc, would take advantage of their strong financial positions to acquire downstream operations to which they could supply hot rolled coil more predictably. So far the only aggressor has been Nucor, which already owned pipe and tube mill Skyline Steel before the 2016 acquisition strategy.

After the Independence Tube deal, competing tube mills initially said they were confident that Nucor would continue to be a reliable supplier of coil. Another market participant recently said, however, that some of those mills are being too complacent about that, and their relationship with Nucor is bound to become strained at some point.

The market participant said Nucor’s tube-mill initiatives may be a shot across the bow to a debutante competitor, Big River Steel, which is about ship its first hot rolled coil this month.

Nucor’s foray into structural tubing may have been a factor in Zekelman Industries Inc – whose Atlas Tube Inc division is the nation’s largest maker of structural tubing – deciding to reopen its nearby HSS mill.

Other tubing mills who are concerned about their future relationship with Nucor are forging supplier relationships with Big River, even just to hedge their bets, the market participant said.

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