Gerdau Offers Attractive Bid to Chaparral

Gerdau Ameristeel, the U.S. unit of the biggest steel maker in Latin America, has declared its intentions of buying Chaparral Steel for $4.22 billion in order to boost the output of metal, to keep up with the surging demand. Gerdau said, once the acquisition is complete, it will buy Chaparral bonds.

Gerdau Chief Financial Officer Osvaldo Schirmer said, the Company will offer to buy $300 million of Chaparral's debt. Chaparral shareholders will be given $86 a share, 14 percent more than the closing price on Tuesday.

The value that the North American unit of Brazil-based Gerdau SA has put on Chaparral is way above the bout of other deals in recent months, analysts said yesterday. "This is setting a new standard," said independent steel analyst Charles Bradford. "Chaparral is not a bad company by any means, but it's not that good."

With the purchase of Midlothian, Texas based Chaparral Gerdau will be able to add 2.9 million tons of steel used in nonresidential construction, raising its metal output by almost a third.

According to Gerdau, the transaction which is anticipated to be accomplished later this year, will deliver annual pretax operating synergies of more than $55 million by 2008.

67 percent of Gerdau Ameristeel is owned by Gerdau SA. The former has an annual production capacity of nine million tons. It, along with Chaparral makes use of mini-mill technology, which makes use of scrap metal as a raw material rather than the iron ore and coal used in blast furnaces.

The purchase of Chaparral will also allow Gerdau to diversify into "high value-added," said Mario Longhi, the Ameristeel chief executive.

"This transaction reaffirms our strategy to participate in the global steel consolidation," said André Johannpeter, president of Gerdau SA.

Globally, Steel mergers are occurring at a high pace as companies seek greater flexibility to increase output of higher-priced steel or idle capacity to sustain prices. This year has seen some major takeovers in the industry including, Tata Steel's $12 billion purchase of Corus Group and Arcelor Mittal's $5.4 billion takeover of Arcelor Brasil. Gerdau Ameristeel bid ranks fifth among the chief takeovers this year.