OneSteel dropped another hot one in the
ACCC’s lap this morning with an agreed $1.6 billion takeover of its main
competitor, Smorgon Steel Group.

The cash and paper bid puts an implied value of $1.76 on Smorgon shares – a premium of nearly 32% over Smorgon’s average price over the past month.

OneSteel and Smorgon say the deal will be
earnings-per-share accretive in the first full year of the takeover, as long as
you ignore write-offs, and will result in “a major, more efficient and
competitive Australian steel company” with 10,000 employees, annual revenue of
$5.5 billion and earnings before interest, tax, depreciation and amortisation
of about $700 million.

But of course this is subject to ACCC
approval and OneSteel and Smorgon just happen to dominate the long steel
products market here between them.

The argument Graeme Samuel will cop from
OneSteel is an old one about a strong Australian company needed to handle
foreign competition. OneSteel will also stress the merged entity’s operations
in ten foreign companies.

The other Australian steel maker,
BlueScope, is mainly in the slab and plate end of the market and not really a
competitor against the other two. Various importers are, especially when
there’s an excess of some steel products on the international market.

So, does Graeme allow another merger to
create a dominant Australian company in its sector, able to fight foreign
competitors, or block the merger and keep the steel long products market
competitive?

Peter Fray

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