BlueScope consolidates US footprint through $670m acquisition

BlueScope Steel (ASX: BSL) was up 1.7% at the open following revelations the steel giant is buying the second biggest metal painter in the US, New York Stock Exchange-listed Cornerstone Building Brands' Coil Coatings business for $US500m ($670m).

Following investments in its US North Star mini-mill (US$770m) and the establishment of BlueScope Recycling (US$220m), the Coil Coatings investment brings BlueScope’s investment in North America to more than $4.5bn, employing more than 4000 employees.

Long-term earnings growth

Managing director Mark Vassella described the acquisition of Coil Coatings as a significant step forward in the company’s growth plans for North America by providing immediate and direct access to the large and growing Eastern US region.

With a total capacity of around 900,000 tonnes pa across seven facilities - serving commercial and industrial construction applications – Coil Coatings virtually triples the company’s US metallic coating and painting capacity to over 1.3m metric tonnes pa.

“The Coil Coatings business provides BlueScope with a significant opportunity for long-term earnings and growth through product development and branded products consistent with the BlueScope’s customer service and value proposition around the globe,” said Vassella.

“The acquisition also provides for further integration with BlueScope’s existing US business value chain.”

Funding and synergies

BlueScope will fully fund the acquisition with cash from its balance sheet and is expected to be immediately accretive to earnings per share.

While the key focus is the medium to longer-term opportunity the acquisition provides, management has identified operational and supply chain synergies of around US$12m pa by year three.

Subject to regulatory approval and other customary closing conditions, the transaction is targeted for completion in 2022.

Post completion, BlueScope expects to remain in pro-forma net cash position and remains in a strong position to continue to execute previously announced projects and an on-market buy-back.

Fundamentals

While BlueScope has struggled over the past 12 months, the share price is up around 8% since Russia invaded Ukraine late February on the back of rising steel prices.

What's adding to supply concerns are Chinese lockdowns within some of its steel-producing regions, with big buyers of steel now needing to look for other suppliers.

A tight supply chain and the Russia/Ukraine conflict have also seen global pig iron prices rise around 20% in the last month.

In the recent FY22 half-year result, BlueScope delivered a record underlying earnings before interest and tax (EBIT) of $2.2bn and a reported net profit after tax (NPAT) of $1.64bn.

Management has guided to second half FY22 earnings (EBIT) in the range of $1.2bn to $1.35 bn, and highlighted good demand in key segments, especially in building and construction, coupled with “robust” margins driven by the increased steel prices in Asia and the US.

BlueScope Steel share price over three months.