Steel Mills

Consolidation Continues as Nucor to Acquire Gallatin Steel

September 15, 2014

Nucor announced this morning that they have reached an agreement to purchase all of the equity in Gallatin Steel for $770 million. Gallatin Steel is located in Ghent, Kentucky and has the capacity to produce approximately 1.8 million tons of hot rolled steel. Gallatin is an electric arc furnace (EAF) mini mill and complements Nucor’s other production facilities. The combination of the Gallatin tons with those from their existing plants increases Nucor’s annual capacity to approximately 13 million tons.

Here is a portion of the press release from this morning (Monday, September 15, 2014):

CHARLOTTE, N.C., Sept. 15, 2014 /PRNewswire/ — Nucor Corporation (NYSE: NUE) is pleased to announce that it has entered into an agreement to purchase all the equity of Gallatin Steel Company for a cash purchase price of approximately $770 million. Adjusting for the net present value of the anticipated tax benefits, the realized effective purchase price for Nucor is approximately $630 million.

“Our agreement to purchase Gallatin Steel is a significant step forward in the execution of Nucor’s strategy for profitable growth. Importantly, Gallatin will enhance Nucor’s current position serving flat-rolled customers in the growing pipe and tube segment. We believe this transaction will create excellent value for our shareholders, as the purchase price represents a multiple of approximately 6.4 times estimated 2015 EBITDA before synergies and approximately 5.3 times estimated 2015 EBITDA before synergies net of anticipated tax benefits,” said John Ferriola, Chairman, CEO and President of Nucor. “We are both excited and proud to have the men and women of the Gallatin team join our Nucor family.”

Strategically located on the Ohio River in Ghent, Kentucky, the flat-rolled products mill, with an annual capacity of approximately 1,800,000 tons, broadens Nucor’s footprint in the important Midwest region. Adding Gallatin to Nucor’s four existing flat-rolled mills will increase Nucor’s total flat-rolled product annual capacity by 16% – to approximately 13 million tons.

“Gallatin is a great fit for Nucor and our sheet mill group. Our two companies have a strong cultural compatibility, particularly the importance and focus we each put on safety, quality and productivity,” said Ladd Hall, Executive Vice President of Flat-Rolled Products. “The acquisition will further strengthen our ability to meet the needs of all of our flat-rolled product customers.”

Nucor anticipates that this transaction will close promptly after the satisfaction of all closing conditions and the receipt of required regulatory approvals. It is expected to be immediately accretive to cash flow and accretive to earnings after working through purchase accounting-valued finished goods inventories. The acquisition will be funded with available cash and commercial paper borrowings. With its strong balance sheet and healthy cash flow generation, Nucor does not anticipate issuing either long-term debt or equity as result of this purchase.

SMU Note: Nucor still has the complete cold mill which was purchased from the former Sparrows Point steel mill.

Brian Robbins, CEO of MidWest Materials, Inc. and President of the Association of Steel Distributors told us, “Gallatin has been a valuable supplier for many years, and I think it is exciting to see some of our country’s newer steel assets continue under the direction of such a stable and consistent domestic supplier that has shown valuable leadership in our industry.”