***HOTLINE: Schnitzer Steel is in play — sources

Schnitzer Steel Industries is in play and could be sold to a domestic mill, sources told Hotline.

Rumours of a takeover started circulating about six weeks ago and sources indicated this week that it is just a matter of time before the company is purchased. It hasn’t put up a “for sale” sing, but is being courted, they said.

“A major US mill is looking to buy it,” said one, who also indicated that recent activity at Schnitzer’s offices had made the intent obvious. “When you parade people through, people working recognize that something is going on, that something is out of kilter.”

Potential suitors are interested in Schnitzer’s scrap assets. But a successful buyer “may get a steel mill thrown in as part of the deal”, the source said, referring to the company’s Cascade Steel Rolling Mills.

Nucor, Gerdau Ameristeel and Derichebourg, a Paris headquartered company whose US subsidiary operates scrapyards in Houston and Oklahoma City, have all been fingered as potential buyers for the company.

Nucor and Gerdau Ameristeel declined to comment, while Derichebourg could not be reached.

Schnitzer has remained similarly mum, although it did refer to comments made by management earlier this year. The company intends to be a consolidator and not consolidated, a spokesman said.

“We have been executing a growth strategy, having made 16 acquisitions in four-and-a-half years,” he told Hotline. “We are excited about the future and our growth opportunities, which include market expansion through acquisitions and growth through technology.”

The company was listed on the stock market in 1993 by the Schnitzer family, who have been selling shares regularly since 2003, taking their control of the company below 20% and triggering a clause in the company’s charter that eliminated the family’s exclusive, supermajority voting rights.

Those supermajority voting rights were seen as a defence to prevent a hostile takeover.

Schnitzer is an attractive asset, and its scrap supplies are particularly so, particularly in the Pacific Northwest, market participants told Hotline.

“[The mills] want to tie up the markets,” said one. “If they buy Schnitzer, they would not have to do anything in the Pacific Northwest in terms of finding enough scrap to meet their raw material needs.”

A buyer would pick up around 20% of the ferrous scrap activity on the West Coast, according to some observers in that market, most of whom agree that Nucor would be the most likely buyer given its healthy $2 billion cash position.