United States Steel Corp.: Stelco Deal Inked After Rough 3Q

Nov. 28, 2007
Steelmaker looks to bolster North American market share with acquisition after quarterly earnings fall.

U.S. Steel Corp. has not backed down from global competitors while continuing its battle against industrywide pressures that have cut into profits. The Pittsburgh-based company and IW 50 Best Manufacturer for 2007 said on Oct. 30 it completed the purchase of Canadian steelmaker Stelco Inc. just a day after releasing its third-quarter results.

The buyout could be seen as encouraging news for shareholders after the company said quarterly profit declined 35.5% over the year-earlier period. Profit fell to $269 million or $2.27 per share from $417 million, or $3.42 per share, reported during third-quarter 2006.

The company incurred a $27 million pretax charge related to its acquisition of Lone Star Technologies Inc. that reduced third-quarter profit by $28 million. Pricing pressures also impacted earnings across business segments, including higher raw materials costs and lower steel prices.

Meanwhile, U.S. Steel has been rumored as a takeover target itself. In fact, one analyst quoted by MarketWatch saw the buyout of Stelco as an attempt to "ward off" suitors by bulking up its own operations. In late 2006, U.S. Steel's shares spiked after news that Russian steelmaker OAO Severstal was interested in the company.

U.S. executives didn't indicate in prepared statements that the Stelco buyout was anything but a strategic move to increase its North American market share. The $1.2 billion purchase makes U.S. Steel the fifth-largest steelmaker worldwide.

United States Steel Corp.
At A Glance

United States Steel Corp.
Pittsburgh, Pa.
Primary Industry: Fabricated Metal Products
Number of Employees: 44,000
2006 In Review
Revenue: $15.7 billion
Profit Margin: 8.74%
Sales Turnover: 1.48
Inventory Turnover: 8.45
Revenue Growth: 11.94%
Return On Assets: 13.99%
Return On Equity: 41.34%

"From the increased utilization of our Minnesota Ore Operations through the conversion of slabs and hot bands produced at Stelco by our other finishing facilities, this transaction optimizes our operations and allows us to better serve our customers," said John Surma, U.S. Steel Chairman and CEO, when the initial agreement was reached in August. "With major facilities located on both sides of the Great Lakes, this acquisition will significantly increase our ability to respond to market demands and our customers' needs."

Through the acquisition, U.S. Steel gains Stelco's Lake Erie Works facility in Nanticoke, Ontario, Canada, which the company touts as the most modern integrated steel plant in North America. The plant was built in 1980 and supplies the automotive and pipe and tube markets and steel service centers. The company also will increase its semifinished steel capacity with the addition of Stelco's Hamilton Works. All former Stelco business units are now part of U.S. Steel Canada.

More recently, the company said it plans to challenge the U.S. International Trade Commission's decision to revoke an antidumping duty order on steel pipes from Mexico. The company filed an appeal on Nov. 21 seeking a reversal of the ITC's decision and asking that the antidumping order be reinstated.

"This is a significant product for domestic producers, and we strongly disagree with the ITC's conclusion that dumped imports from Mexico will not harm the domestic industry," Surma said in a statement. "In fact, we are already seeing negative effects from the ITC's decision caused by low-priced imports from Mexico."

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