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BlueScope Steel, Australia's largest steelmaker and owner of the New Zealand Steel mill, has agreed to buy assets of Fletcher Building's [NZX: FBU] Pacific Steel in a $120 million deal that will lead to the closure of Fletcher's steel mill at Otahuhu at the end of 2015.
The transaction will leave BlueScope as the nation's only steelmaker and requires approval from the Commerce Commission. The companies are aiming to complete the transaction in mid-2014.
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, according to a statement from Auckland-based Fletcher, which expects a one-time net expense of about $19 million.
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, it said. Until then, Fletcher will continue to operate the Otahuhu mill and supply BlueScope with billet on commercial terms, Fletcher said.
"These are tiny plants on a world scale and this is how you allow manufacturing to survive here," Philip King, Fletcher's investor relations manager, told BusinessDesk. "The competition comes from imports."
The shuttering of the Otahuhu mill is likely to see a jump in exports of scrap steel that used to be melted at the mill. BlueScope's Glenbrook plant is essentially set up for iron sand processing. Fletcher owns 50 percent of scrap metal business Sims Pacific Metals.
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.
The deal "will help make the New Zealand steel industry more sustainable," said BlueScope chief executive Paul O'Malley. "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."
Fletcher chief executive Mark Adamson said most of the Pacific Steel rolling mill and wire drawing workers will be offered work by BlueScope. The deal doesn't affect ownership of Fletcher's steel distribution business, Fletcher Easysteel, or its reinforcing business, Fletcher Reinforcing.
Fletcher shares rose 1.1 percent to $9.58 on the NZX and are up 6.4 percent in the past 12 months. Bluescope was last at A$5.93 on the ASX, having soared 56 percent in the past 12 months.