Maverick Tube Corp.: Ripe For The Picking

July 12, 2006
Strong U.S. and Canadian growth leads to the buyout of oil industry supplier.

When business is booming for Big Oil, the industry's suppliers also reap the benefits. In fact, business has been so good for Chesterfield, Mo.-based Maverick Tube Corp. that the producer of steel pipes for the oil and energy industry became attractive to investors.

In June, Luxembourg-based Tenaris SA signed a merger agreement with Maverick -- one of IndustryWeek's IW 50 Best Manufacturers for 2006 -- to acquire the company for US$3.2 billion. Tenaris is a global producer of seamless steel pipes for the oil and gas industry.

If approved, the combined companies would have annual sales of approximately US$9 billion, 30% of which would come from the U.S. and Canada. Tenaris would assume $785 million in debt held by Maverick, according to Reuters. The merger is viewed by both companies as an opportunity to expand their offerings globally.

"Maverick's success in North America complements the strength of Tenaris in international markets," said Robert Bunch, chairman and CEO of Maverick in a June 12 statement. "Moreover, the combined entity will be able to provide a broader array of products and services to our customers, positioning us better to compete in a highly competitive marketplace. This expanded platform will benefit our employees and represents an attractive opportunity for stockholders."

For Tenaris, the move will give the company "full access to the energy sector in the U.S. and Canada," said Tenaris Chairman and CEO Paolo Rocca. "We will be able to support the growing requirements of our customers in the full range of applications from onshore shallow wells to extremely demanding deepwater wells in the Gulf of Mexico."

Maverick Tube Corp.
At A Glance
Maverick Tube Corp.Chesterfield, Mo.Primary Industry: Primary MetalsNumber of employees: 4,6502005 In ReviewRevenue: $1.8 billionProfit Margin: 9.65%Sales Turnover: 1.44 Inventory Turnover: 3.35 Revenue Growth: 22.59%Return On Assets: 17.19%Return On Equity: 28.92%

The deal came less than two months after Maverick said it had achieved a record first-quarter profit of $70.9 million, or $1.80 per share, compared with $41.2 million, or 72 cents per share during the year-ago period. The acquisition also comes slightly more than a year after the company named Robert Bunch its chairman and CEO.

Prior to the merger agreement, Maverick began expansion efforts in Canada. The company responded to increased demand for oil country tubular goods (OCTG) in Canada by expanding the finishing facilities of its subsidiary Prudential Steel Ltd. in Calgary, Alberta, Canada. The company is adding a threading line, scheduled to be completed this summer.

"Demand for OCTG has increased significantly over the last year, and the outlook for 2006 is very positive," said Prudential President Bob Lee in a Feb. 27 statement. "With the expansion of our pipe-making capacity last year and the planned threading capacity increase this year, Prudential will be well positioned to meet our customer's increasing needs for OCTG." During first-quarter 2006 Canadian energy activity accounted for approximately 37% of the company's revenues, according to Bunch.

Maverick began manufacturing mechanical tubing in 1978 with one mill in Union, Mo. The company expanded its presence in the energy market in 1986 when it produced its first line pipe. The company made several acquisitions between 2002 and 2005, including the purchases of Columbia, South American line pipe and tube companies Tubos del Caribe SA and Colmena SA, which set a foundation for future growth in Latin America.

With the acquisition of Maverick, Tenaris' stake in the U.S.-Canadian market is expected to jump from 5% to 20%, according to Reuters.

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