When the
Smorgon family came to Australia from Russia almost 80 years ago, they got into all sorts of
businesses but one particularly successful tactic was to target industries
which were dominated by a lazy monopoly.

There were
none bigger or more lazy that BHP’s Australian steel monopoly, so it was no
surprise that Smorgon Steel proved to be a great success over the years.

So it a
rich irony indeed that the demerged BHP business Onesteel has today announced it is now paying
a
healthy premium to take over Smorgon Steel in a deal that values the
enterprise
at $2.7 billion, including $1.1 billion in debt, and will create a
dominant domestic player in long products with 10,000 employees.

Smorgon has clearly got the better end of the deal in return for giving up
control because its shares have rocketed 43c to a six year high of
$1.77 while Onesteel is only up 11c to $4.09, suggesting the market
anticipated fabulous synergies and no problems from the competition
authorities.

Smorgon will only get two spots on the expanded Onesteel board
– Graham Smorgon and chairman Laurie Cox – but the Smorgon family will
still emerge as the largest shareholder of the combined operation,
albeit only with about 10% depending on how much cash or scrip they
accept.

The presentation
barely even mentions the ACCC, which will no doubt play a major role in
determining whether this deal can go through. Chairman Graeme Samuel is
increasingly regarded as a merger soft touch as Australian industry
gets more and more concentrated with every passing month, so don’t expect
him to tough a stand protecting the consumer.

Like the old investment banker that he is, Samuel takes an approach of
“finding a way to get the deal done”. In this case that has been a
boon to his old employers at Macquarie Bank, which has advised the
Smorgon family for the past decade and will no doubt pocket a big
success fee if this deal gets done, effectively finalising the break-up
and sale of the family’s empire.

Peter Fray

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