Nothing Mini About This Bid

It's precisely the sort of story that keeps Fools raptly attentive to the equities markets and ever hopeful of big paydays: In mid-2005, Chaparral Steel (Nasdaq: CHAP) was spun off from cement manufacturer Texas Industries (NYSE: TXI) and began trading at $12.50 per share. On Wednesday, it was announced that Chaparral would be acquired by Gerdau Ameristeel (NYSE: GNA) for $86 a share, or $4.2 billion.

Chaparral, whose shares closed at $83.67 on Wednesday, up 10.5% on the day, is North America's second-largest manufacturer of structural steel products. The company can annually produce nearly 3 million metric tons of steel beams, bars, and other related products from its two mini-mills. It primarily serves the commercial construction industry, but its products are also used in defense, automotive, energy, and manufactured housing applications.

For its part, Gerdau Ameristeel is North America's fourth-largest steel company and its second-largest steel mini-mill operator, with an annual capacity of more than 9 million tons. Its products also make their way into the construction, automotive, mining, and electrical industries. The company is based in Tampa but is 67% owned by Brazil's Gerdau S.A. (NYSE: GGB), the largest long steel producer in the Americas.

In announcing its offer, Gerdau management stated that it would consider an equity offering to tidy up its balance sheet once the acquisition has been completed. Management expects that combination to be slightly dilutive to earnings through 2008.

And so we have here the latest iteration in big steel companies buying smaller, specialized operations. Earlier this year, for instance, U.S. Steel (NYSE: X) acquired Lone Star Technologies, a maker of oilfield tubular goods. It's a trend that I expect to accelerate, given the world's steadily growing demand for resources and the increasingly international nature of industrial competition.

To those Chaparral shareholders among you: Hearty congratulations. The rest of us might be well advised to redouble our attention to Western steel products manufacturers.