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BlueScope Steel gets antitrust clearance to buy Fletcher’s Pacific Steel

BlueScope Steel, Australia's largest steelmaker and owner of the New Zealand Steel mill, has gained antitrust approval to acquire the assets of Fletcher Building's [NZX: FBU] Pacific Steel in a $120 million deal.

The Commerce Commission said while the acquisition will leave BlueScope as the only New Zealand producer of flat steel products such as steel slab and sheeting, and long steel products such as billet, reinforcing bar and wire there wasn't an overlap between the two businesses and prices would continue to be influence by imported product.

"The products supplied by BlueScope and Pacific Steel can be sourced through imports and the import price strongly influences the prices that BlueScope and Pacific Steel are able to charge," commission chairman Mark Berry said in a statement. "Post-merger, imports will continue to provide pricing pressure on the merged business."

The companies are aiming to complete the transaction by the middle of the year. As a result, Fletcher plans to close its steel mill at Otahuhu at the end of 2015.

Melbourne-based BlueScope will pay $60 million for Pacific Steel's long-products rolling and marketing operations and pay about $60 million for the target's working capital, Fletcher said in February. The Auckland-based company expects a one-time net expense of about $19 million as a result.

Bluescope will pay half the $60 million price of the assets upfront and the remainder once it has commissioned a new billet caster, expected to be by the end of calendar 2015.

The Australian company will build the billet caster at the Glenbrook mill south of Auckland operated by its NZ Steel unit, spending about $50 million on the new plant. Until then, Fletcher will continue to operate the Otahuhu mill and supply BlueScope with billet on commercial terms, it said in February.

The sale includes Pacific Steel's rolling mill and wire drawing facilities at Otahuhu and its Fijian rolling mill. Once Bluescope's billet caster is running, NZ Steel will supply billet to the rolling mills at Otahuhu and in Fiji.

Fletcher shares were last at $9.60 and have gained 13 percent this year. Bluescope was last at A$6.35 on the ASX and are up 9 percent this year.


Comments and questions

Most countries have competition, or antitrust laws. ... The idea is that competition delivers lower prices, increased choice and better service for customers, and ensures businesses remain innovative.

Statements to the Australian and NZ Stock Exchanges:

Commenting on the transaction, BlueScope’s Managing Director and Chief Executive Officer, Mr Paul O’Malley, said: “The acquisition of the PSG downstream assets is an opportunity to better leverage our low
cost iron sands and better serve customers with a full range of long products, together with our existing flat products.

“Through improved sales mix and lower cost of production, driven by lower cost raw materials, the acquisition, including integration costs, is expected to achieve an EBIT pay-back within three years from transfer of billet production to Glenbrook.

“Today’s announcement is not only a positive step for our business but will help make the New Zealand steel industry more sustainable. We will invest in significant new capital equipment at Glenbrook, create construction jobs and help to secure New Zealand jobs, with significant flow-on benefits to the local communities,” Mr O’Malley said.

Fletcher Building Chief Executive Officer Mark Adamson said that having a local operator acquire the business was the best outcome to help ensure that steel manufacturing in New Zealand remains globally competitive. “This is a home-grown solution that secures a sustainable future for the New Zealand steel industry”, Mr Adamson said. Most of the employees in Pacific Steel’s rolling mill and wire drawing facilities will be
offered employment with BlueScope subsidiaries on terms and conditions that are similar to their current arrangements. Staff who are not offered employment will remain employees of Fletcher Building to operate the steel mill at Otahuhu until it is decommissioned, following which they will be given the opportunity to re-train and move to other roles in the Fletcher Group. The transaction does not affect the ownership of Fletcher Building's steel distribution business, Fletcher Easysteel, or its steel reinforcing business, Fletcher Reinforcing. Assuming completion by 30 June 2014, Fletcher Building expects to record a significant
expense item of up to $19 million, reflecting the gain on sale of assets, offset by transaction costs and adjustments to asset carrying values.