United States Steel Corp. has recently inked a deal to acquire Dallas oilfield products provider Lone Star Technologies Inc. in an all cash transaction valued at $2.1 billion. U.S. Steel has been evidently absent from the steel industry’s recent consolidation. However, it unveiled a $2.06 billion effort to keep up its strong presence The decision of the Pittsburgh steel giant to buy Dallas-based Lone Star is, in fraction, a defensive move to compete against non-U.S. steelmakers and to lay hands on assets while they are still available.
Furthermore, the move will provide U.S. Steel a layer of protection from becoming an acquisition target itself, as has been rumored in recent months. The combined company will be the biggest producer of tubular steel in North America. The largest steelmaker in the US has been reeling under immense strain to expand in the wake of the $27 billion takeover by Lakshmi Mittal’s Mittal Steel of Arcelor to form Arcelor Mittal last year and the purchase of Anglo-Dutch Corus by Tata Steel of India for £6.7 billion in January this year.
U.S. Steel has offered $67.50 per share in cash for Lone Star. The deal was unanimously approved by the boards of directors of both firms. The price per share represents a premium of approximately 39 percent to Lone Star’s closing share price of $48.45 on Wednesday, and a premium of approximately 43 percent to its 90- day average trading price.
The combination will almost double U.S. Steel’s yearly output of North American tubular steel to as much as 2.8 million tons from a current capacity of 1.8 million tons, marking the company as the largest producer in this market ahead of rival Ipsco Inc. U.S. Steel further speculates that the deal to add to earnings per share this year and to generate over $100 million in annual operating synergies by the end of 2008. It has further stated that the deal will strengthen its position in the growing oil drilling sector by joining its predominantly seamless tubular business with Lone Star’s complementary welded tubular business.
U.S. Steel’s CEO John P. Surma said in a press release, ‘U.S. Steel will be better positioned to serve the international oil and natural gas industry as the provider of choice for tubular products.’ U.S. Steel also planning to expand sales in emerging markets such as India, China and Brazil, where Lone Star established joint ventures or is negotiating partnerships.
