Australian steelmaker BlueScope Steel said it was considering a sweetened A$15 billion ($10.62 billion) takeover approach from SGH Ltd and U.S.-based Steel Dynamics, but investors remain hesitant that a deal will go ahead.
Media billionaire Kerry Stokes-owned SGH and Steel Dynamics said they will now pay A$32.35 per BlueScope share in cash, calling it their “best and final” bid unless a higher rival offer emerges for all or part of the steelmaker.
Including recent dividends, the bid is worth A$34 per share.
BlueScope shares were trading 1.9% higher to A$28.56, well below the offer price, suggesting investors are sceptical a deal will get done. SGH shares were up 1.2% to A$47.39, while the S&P/ASX200 was trading up almost 0.5%.
“Given the very strong rejection of the initial offer, there is a reasonable chance they still reject it,” said Joseph Koh, Blackwattle Investment Partners portfolio manager. He is a BlueScope and SGH investor.
“This offer is obviously materially higher than the original, so … there’s a good chance they will accept it. But I think it’s probably more than 50% chance that they will reject it, which is what the market seems to be pricing in.”
BlueScope said on Monday it expected to return up to A$3 per share to investors in the current financial year, including a A$1 per share special dividend and an on-market buyback.
The steelmaker doubled its interim dividend as it announced an almost 120% lift in first-half underlying net profit to A$391 million.
BlueScope’s board had argued SGH and Steel Dynamic’s first bid undervalued the company, its future prospects and a land bank the company valued at about A$2.8 billion.
“BlueScope has demonstrated some strong defence tactics over the last month, with buybacks and specials and a number of other measures,” said John Ayoub, Wilson Asset Management portfolio manager, which is also an investor in both Australian stocks.
“But I think the reality is that this number is good enough to get a deal done. And we believe at A$34, that they should be progressing to finalise a deal.”
BlueScope’s board said it would consider the proposed valuation, conditions and the execution risks of the bid.
Despite the higher price, analysts said it was likely BlueScope’s board would be looking for a price above the new offer.
“We do not expect that a +13% increase is sufficient to bridge the prior gap to the Board’s view of fundamental value,” analysts at RBC wrote in a note, referring to the latest offer price including dividends.
“Our mid-cycle implied value is in the mid-A$30 a share range, and that an offer will need to be at least at this level to be successful.”
AustralianSuper, the steelmaker’s top shareholder with a 13.52% stake, declined to comment. It backed BlueScope last month in rejecting the prior offer, saying it “very significantly undervalued” the company.
SGH and Steel Dynamics on Wednesday maintained their plan to break up the Australian steelmaker along geographic lines — SGH would take the Australian operations and Steel Dynamics would get the North American unit.
Indiana-based Steel Dynamics has assets some 90 km (50 miles) from BlueScope’s plant in Ohio.
The proposal, first made in December, marked the latest attempt by Steel Dynamics to buy Australia’s largest steel producer, and comes as the sector grapples with U.S. President Donald Trump’s tariffs on steel imports.
Source: Reuters.com