KEY POINTS:
Sims Group, the world's biggest recycler of scrap metal, came near to a record close in Sydney trading yesterday after agreeing to buy US-based Metal Management for US$1.49 billion ($2 billion) in stock.
Sims is paying about US$57.75 a share, 18 per cent more than Chicago-based Metal Management's September 21 closing price.
Metal Management investors will receive 2.05 American depositary receipts of Sydney-based Sims for each share, the companies said.
Buying Metal Management will give Sims control of about 13 per cent of the US metal-recycling industry and more than 200 operations on four continents. Sims chief executive Jeremy Sutcliffe has been buying rivals, including New York-based Hugo Neu Group, to gain more power over scrap prices and cut costs.
"It offers them further access to the US environment, building on their previous acquisition of Hugo Neu a couple of years back," said Ben Brownette, analyst at Aegis Equities Research in Sydney. "It looks good, it's no debt obviously, it's a scrip swap, which is positive in today's environment" of tighter credit, he said.
Sims rose as much as A$1.49, or 4.6 per cent, to A$34.04 and closed at A$33.10 on the Australian Stock Exchange. The stock rose to an intraday record of A$34.28 on September 14 and closed at a record A$33.30 on September 20.
Metal Management is among US-based processors that have benefited from rising demand for scrap metal used in minimill steel plants as the cost of iron ore used in traditional blast furnaces increases. The transaction will save about US$35 million and create a company with US$6.8 billion in annual sales, the companies said on Monday.
"It's good for Metal Management to get more global and a good way for Sims Group to increase its exposure in the US," said Michelle Applebaum, who runs a steel equities research firm in Illinois.
The transaction signals the metals recycling industry is ready to consolidate in the same way the mining and primary metals industries have, Metal Management chief executive Daniel Dienst said. "It is time the scrap industry pulled itself away from the folding table at the Thanksgiving commodity banquet and join the adults," Dienst said. "Long-term, we think the value creation is enormous."
The company controls 8 per cent of the US metal-recycling industry, a share Dienst said would rise to about 13 per cent when the transaction is completed next year. The transaction will increase Sims' sales by 55 per cent and will raise the proportion for earnings from North America to 62 per cent from 45 per cent, the group said.
Metal Management's largest shareholder is fund manager Royce & Associates, with 15 per cent of the company, according to data compiled by Bloomberg. Sims is 19.9 per cent owned by Mitsui & Co, which will name two directors to the combined companies' board, Dienst said.
"The whole scrap-metal industry is looking to consolidate to bring some discipline to pricing," said Eric Prouty, a Boston-based managing director at Canaccord Adams, the capital markets division of Canaccord Capital, who doesn't own Metal Management shares.
The Deal
* The sale gives Sims control of about 13 per cent of the US industry.
* Sims will have operations on four continents.
* It paid 18 per cent more than Metal Management's closing price.
- Bloomberg
