| March 2006 |  |
| Metal Industry News | |
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Mittal
Delivers Takeover Offer; Arcelor
has also remained active on the acquisition front, closing its purchase
of Canadian steelmaker Dofasco and purchasing 38 percent of the
shares of Chinese steelmaker Laiwu Steel Group (see
related article). One
competing executive believes the global steel landscape will be
altered regardless of which way the takeover attempt finishes. “That
was the offer heard around the world,” Nucor Vice President
John Ferriola said at the 2006 Toll Processing Conference Feb. 16
in Orlando, Fla. “Whichever way this comes out, whether Mittal
is successful in acquiring Arcelor or not, that action will spur
a tremendous round of acquisitions around the world.” “If
Mittal wins, you’ve got tremendous consolidation, No. 1 getting
No. 2. If they don’t, Arcelor and every other significant steel
company around the world will be looking around to see who they
can acquire as a defensive measure, to make sure they’re not
the next one Arcelor or Mittal is coming after,” he added. Mittal
delivered its offer Feb. 6 in Luxembourg, Spain, France and Belgium.
It was also extended to the United States. The offer consists of
four Mittal Steel class A common shares and $35.25 (euro) cash for
every five Arcelor shares. Arcelor
CEO Guy Dolle and Chairman Joseph Kinsch initially expressed disinterest
and later formally announced that they would not discuss the takeover
attempt further. Still, the potential acquisition remains the primary
talk among others in the industry. “They
changed the scope of consolidation in one morning,” Ferriola
said of Mittal’s bid. Arcelor
Purchases 88% Share of Dofasco, Stake in Laiwu Arcelor
S.A., Luxembourg, completed the purchase of 88.4 percent of the
shares of Canadian steelmaker Dofasco. Arcelor paid $71 (Canadian)
per share to acquire the Hamilton, Ontario, company. To
provide Dofasco shareholders who have not yet accepted the offer
with more time to do so, Arcelor extended the expiration date of
the offer to March 7. Finalizing
the Dofasco deal was not Arcelor’s only activity during the
month as it continued to deny interest in Mittal Steel’s takeover
attempt. Arcelor also agreed to purchase a 38.41 percent stake in
Laiwu Steel Corp., a subsidiary of Chinese steelmaker Laiwu Steel
Group, Shanghai. “This
partnership with Laiwu gives us an opportunity to contribute to
the tremendous development potential of China, the world’s
largest and fastest growing steel market,” says Arcelor Senior
Executive Vice President Roland Junck. With
the addition of its recently commissioned heavy section mill, Laiwu
Steel Corp. is China’s largest producer of sections and beams. MSCI
Carbon Conference: “A
major portion of the world is moving from the 19th century into
the 21st in a very short time. Demand for product in India, China,
and other developing markets will be incredible,” Jones said,
among his observations on the changing global steel landscape. The
shift of some U.S. manufacturing abroad does not spell doom for
American metals suppliers, he added. “Certainly a lot of manufacturing
has moved to other countries, but it appears that if it is material
intensive, it tends to stay here. It’s difficult to ship material
worldwide.” Consolidation
certainly will continue among raw material suppliers, metals producers
and service centers, as well as fabricators and manufacturers, he
said. But amid all the chaos, some factors will remain the same. “There
will be a continuing, vibrant, meaningful, competitive marketplace
for service centers in the United States,” Jones said. “As
many of our customers utilize lean manufacturing, and take other
steps to become more efficient, it plays to our strengths. Leaders
with a passion for this business and a clear understanding of the
need for collaborative relationships with customers and suppliers
will be extremely important. Quality, service, dependability and
consistency will continue to win out. That will not change.” Discussing
mill consolidation and its effect on relationships between trading
partners, Hoffman, of Newport Beach, Calif.-based Macsteel, noted
that true consolidation is not just a change of ownership, but rather
the rationalization of obsolete and inefficient capacity resulting
in fewer workers and facilities producing the same amount of goods. “We
have done a fantastic job [of such rationalization] in the United
States. That’s not so true in other parts of the world,”
he said. Where consolidation reduces infrastructure, it reduces
the pressure on mills to earn their cost of capital. “They
in turn will act more responsibly and give us an opportunity to
act more responsibly,” Hoffman said. Siegel,
of Russel Metals in Mississauga, Ontario, noted that distribution
in the United States is much more fragmented than in Canada. Russel
and its rival Samuel, Son & Co. Ltd. command nearly a 50 percent
share of metals distribution in their country. “In the U.S.,
you have a different relationship with suppliers. The Canadian model
is much more collaborative,” Siegel said. In
2003, when many mills were struggling financially, Russel adopted
a more cooperative philosophy. “Our objective was not to get
another $5 per ton out of our suppliers. Our first criterion was
inventory management,” Siegel said. “We felt we could
take more cost out of our business through inventory than by trying
to squeeze [a mill] that was already in bankruptcy. It became a
much more collaborative relationship with our suppliers.” “We
have applauded consolidation where it has led to rationalization
of unneeded capacity in the United States. The result is a market
more disciplined and better balanced with supply and demand,”
said Jones. However, O’Neal has not been unaffected by the
process. “Two
years ago, our two major plate suppliers were U.S Steel and Bethlehem.
U.S. Steel no longer produces plate and Bethlehem is now part of
Mittal. That has been a big change, though through the efforts of
our purchasing group we have been able to adapt without major problems.
Overall consolidation has been a positive, though it’s a day-to-day
challenge,” he added. Just
as Macsteel nourishes its relationships with core suppliers, it
also works hard to develop intimate relationships with customers
by providing for all of their needs. “We put everything we
can into our technical capabilities, providing ever increasing service
and ever improving tolerances to meet their demands,” Hoffman
said. As
a general line distributor, Russel caters to large numbers of relatively
small customers. “We focus on the B and C accounts. We want
customers who need us as much as we need them,” said Siegel,
rather than large OEMs “whose sole objective is to reduce our
price by 3 percent each year.” Developing a personal relationship
with each customer is the best way to keep him from shopping elsewhere,
Siegel added. Is
there a danger in a service center getting too big and losing its
nimbleness? There are companies in other industries that are much
larger and still very successful, noted Jones. “I don’t
think we are approaching a critical mass that makes us too big or
threatens our success. Our business is still one customer at a time,
one order at a time, and that does not change regardless of size.” Macsteel
uses a very flat management structure broken down by geography and
product, and demands a very entrepreneurial approach from its managers.
“That way we are able to keep our focus on our customers’
requirements and keep up with obligations to suppliers. We don’t
believe that we are too big to continue to manage that model.’ In
fact, Macsteel plans to get even larger. “We are hopeful we
will be part of the ongoing consolidation process, and we’re
looking at multiple acquisitions as we speak in different geographical
areas,” Hoffman said. Surprisingly,
the CEOs of O’Neal, Macsteel and Russel have divergent views
of what makes for a good acquisition candidate. O’Neal
looks for profitable companies that immediately add earning power,
as well as extending O’Neal’s geographic or product range.
“In any deal, the first thing we look for is the quality of
their people,” Jones said. “Are they good people, and
will they help us strengthen our business?” Macsteel,
likewise, considers the management talent that will come with an
acquisition. They look at how the company will add value in terms
of product and geography. But the profitability of the prospect
is a distant fourth consideration. “We don’t mind fixing
businesses. There is generally a lot of value that can be gained,”
Hoffman said. As
a public company, any acquisition by Russel has to be immediately
accretive to earnings and highly measurable for investors, with
a strong product or geographic focus, Siegel said. “We like
being a big fish in a small pond. In the States, we haven’t
really found the perfect fit. With today’s multiples, it is
very difficult for a public company to make an acquisition.” Russel
has used acquisitions in certain regions as a means of rationalizing
its weaker operations. “We were unhappy with our performance
in [British Columbia, Quebec and Wisconsin]. We had three options:
shut down and exit the region, stay with the status quo or buy best
of breed and rationalize,” Siegel explained. In all three cases,
Russel bought the best player in the region and merged itself into
the acquiree, rather than the other way around. “We put them
on our computer system, but kept their name and management. We shut
Russel facilities down. Everybody assumed the buyer would put all
their own people in place, but that’s not what we did.” All
three panelists agreed that human assets are a company’s most
valuable resource. Attracting and retaining talent is an ongoing
challenge for the service center industry. “We
have to accept that ours is not a sexy industry,” commented
Hoffman. “Attracting the right talent with the right spirit
and education is hard.” Key to retention is a proper reward
system with incentives that keep employees motivated. “If people
are well rewarded and happy, they are unlikely to leave you for
other businesses. From a human resources perspective, anytime a
good employee leaves, you have to say to yourself: ‘We failed.
What have we done wrong?’” Leavitt
Celebrates 50 Years Founded
in 1956, Leavitt began producing mechanical tubing from a single
7,000-square-foot plant in Chicago. Today, after a half-century
of growth, Leavitt operates 13 tube mills in two locations—Chicago
and Madison, Miss. With over 1 million square feet and 225 employees,
Leavitt produces over 200,000 tons annually of A500-grade welded
structural tubing, A513 mechanical tubing and HiY-50 structural
pipe. The
company created a special 50th anniversary logo to highlight events
planned throughout the year. Maverick
Reports 4Q Earnings Increase Despite
the surge in the final quarter, Maverick’s earnings of $172.3
million were still 11 percent behind the $193.8 million recorded
in 2004. The
manufacturer of tubular products recorded sales of $484.7 million
during the fourth quarter, 34 percent above the $361.3 million in
sales posted in the final three months of 2004. Maverick had sales
of $1.8 billion for the year, $500 million ahead of the previous
year. “Activity
levels continue to be strong in all of our energy markets,”
says C. Robert Bunch, chairman, president and CEO. “A substantial
portion of our sequential revenue growth came from Prudential, Texas
Arai, and TuboCaribe, all acquisitions we’ve completed in the
last five years.” Sales
of energy products recorded in the fourth quarter of 2005 increased
2.5 percent sequentially to $409.7 million from $399.5 million in
the third quarter of 2005. For the year, sales of energy products
grew 53.2 percent to a record $1.5 billion compared to sales of
$954.4 million for the prior year. “Looking
forward, we expect drilling and workover activity in 2006 to continue
to increase in the markets we serve.” Bayou
Sales Increase, Income Falls During 1Q In
contrast, sales were up 6.4 percent during the period, increasing
from $63.1 million to $67.2 million for the final three months of
2005. “Steel
inventories at our customers are low by historical standards. We
expect shipments to continue to grow this year and look forward
to what we believe will be a strong market for the rest of fiscal
2006,” says Jerry M. Pitts, president and CEO. Stelco
Completes Sale of Subsidiaries to Mittal “I’m
pleased for all concerned that the court has facilitated the closing
of this transaction. It provides the subsidiaries with ownership
that views them as strategic assets,” says Courtney Pratt,
Stelco president and chief executive officer. “It provides
certainty to their employees and retirees. And it assists Stelco
in focusing on its integrated steel business going forward.”
Century
Aluminum Reports Loss for 2005 In
the second quarter of 2005, the company changed from the last-in
first-out inventory valuation method to the first-in first-out method.
For
2005, Century reported a net loss of $116.3 million compared to
a $33.5 million income in 2004. Sales
for the fourth quarter of 2005 were $292.9 million, slightly ahead
of the $290.6 million for the fourth quarter of 2004. Shipments
of primary aluminum for the 2005 fourth quarter were 156,014 metric
tons, compared with 157,264 tons shipped in the year-ago quarter.
“Overall,
2005 was a year of record production, revenue and cash flow from
operations for Century,” says President and CEO Logan W. Kruger.
“The Nordural expansion, which began its initial production
on Feb. 15, is continuing to proceed on budget for a scheduled completion
in the fourth quarter of 2006. Looking ahead, we see attractive
opportunities to build a larger, more diversified and more cost-competitive
company.” Northwest
Pipe Reports Record Sales, Earnings In
the fourth quarter of 2005, sales were $77.1 million, 3.9 percent
behind the $80.3 million in the fourth quarter of 2004. Net income
was $3.4 million, 20 percent below the $4.2 million posted during
the final three months of 2004. Outokumpu
sold its Aldridge, U.K., brass rod mill, Outokumpu Copper MKM Ltd.,
to UK-based The Meade Corp. for $20 million euro. The production
capacity of Outokumpu Copper is 40,000 tons of brass rod. Made2Manage
Systems Inc., Indianapolis, a provider of enterprise resource planning
software and services, has acquired AXIS Computer Systems Inc. The
Marlborough, Mass.-based AXIS is a supplier of ERP software and
services to companies within the metals, wire and cable industries.
RathGibson,
Janesville, Wis., has been acquired by New York private equity investment
firm Castle Harlan Inc. RathGibson is a manufacturer of stainless
steel and alloy precision-welded tubing with production facilities
in Janesville and North Branch, N.J., as well as sales offices in
Houston and Shanghai. A
Delaware bankruptcy court has confirmed the second reorganization
plan of Kaiser Aluminum, Foothill Ranch, Calif. The confirmation
order must now be affirmed by the United States District Court.
“We are very pleased by the ruling and it means that the finish
line is within sight,” said Jack Hockema, Kaiser president
and CEO. All
companies in the Irving, Texas-based Commercial Metals Co. underwent
a name change effective March 1 and are now operating under the
CMC name. The CMC Steel Group includes numerous locations that operate
as part of the company’s domestic mills and fabrication segments.
People Carpenter Technology Corp., Wyomissing, Pa., appointed J. Michael Fitzpatrick as vice chairman, working with the senior management team to develop and execute a strategic growth plan for the company. Metals
Industry Supports Scouts Entertainment
will be provided by comedian Jeff Dunham and the Bill Pollack Orchestra.
Dunham is a Stand-up Comic of the Year award winner from the American
Comedy Awards. The 14-piece Bill Pollack Orchestra delivers a variety
of musical styles, including big band, rock and roll, world music
and rhythm and blues. Tickets
to the event are $350 per person. Sponsorships ranging from $3,000
to $9,000 are available. To register online, visit http://events.chicagobsa.org. |
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