Ipsco Battle an Exercise in Consolidation
SSAB's victory in a five-way fight for the Canadian steel maker is typical of takeovers in the industry
By Greg Keenan and Jacquie McNish May 23, 2007
The bidding war for Ipsco Inc. reached such a frenzy earlier this month that Svenskt Stal AB (SSAB) effectively bid against itself at the 11th hour as it tried to wrest the steel maker from larger rivals from Brazil, Russia and the United States and the world's largest steel maker, Arcelor Mittal. The five-way fight to buy the profitable, well-run and superbly positioned Regina-based steel maker is just the latest example of frantic bidding wars that are erupting across Corporate Canada as a new generation of international buyers shop for North American assets. "This is about the internationalization of mergers and acquisitions. People that you wouldn't have heard about a few years ago are coming from all over to buy our companies," said one takeover specialist who declined to be identified. It also demonstrates how cash-rich steel makers are rushing to consolidate to gain more leverage with their key suppliers of iron ore and other metals, which are in the midst of their own merger and acquisition spree. In the end, Ipsco's smallest suitor, Sweden's SSAB, tabled the biggest offer after a hectic night of bidding May 2 that saw it agree to pay $7.7-billion (U.S.) for the steel maker, which runs most of its operations out of Lisle, Ill. According to documents filed with securities regulators, the price represented a 22-per-cent premium over its stock price last month when it announced it was entertaining potential takeovers. The final bid was 45 per cent higher than the initial offer Ipsco received from another potential buyer in October, 2006. As the bids rolled in to the Chicago offices of Goldman Sachs Inc. around 5 p.m. on May 2, SSAB was low on the totem pole at $151 (U.S.) a share, the documents show. Ahead of the Swedish steel maker, which is roughly the same size as Ipsco, were rivals identified in the documents as companies A, B and C. Company A was U.S. giant Nucor Corp., bidder B is believed to be Gerdau SA of Brazil and company C was Evraz Group SA of Russia, sources familiar with the auction said. Ipsco spokeswoman Kelly Brossart said the company would have no comment beyond what was in the Securities and Exchange Commission filing. The document also pointed to a "company D," which told Ipsco that it would have trouble meeting regulatory requirements but wanted time to talk to other companies to submit a joint bid. Ipsco rejected that request, which was believed to be from European steal giant Arcelor Mittal. Russia's Evraz topped the list at $155 a share, surpassing the Nucor and Gerdau bids by $3. By 7:30 p.m. on May 2, Ipsco's board of directors held a conference call and determined that it was time for the company's lawyers and advisers to work with Evraz on a final agreement. That's when SSAB went to work. Its officials telephoned Goldman with a $156-a-share offer.
Ipsco took that proposal back to Evraz, but even before Evraz could respond, SSAB came back with a knockout $160 offer. Evraz had topped the earlier $156 price by only 5 cents, leaving Ipsco free to tie up with SSAB in a $7.7-billion deal. Nucor actually started the process back in February, 2006, when it contacted Ipsco chief executive officer David Sutherland to discuss what a circular referred to as "a potential business combination transaction." But the first offer came from the Brazilians, who met with Ipsco's senior executives on Nov. 1, 2006, to discuss a $110-a-share takeout that Ipsco rejected as insufficient. Some of the companies that lost out were stunned. "I know Nucor was apoplectic that they lost Ipsco," one source said. The dizzying wheeling and dealing for Ipsco is typical of takeovers in the steel industry since Dofasco Inc. was taken out by Arcelor SA of Luxembourg in early 2006 after a nine-month battle that included Nucor early on as an Arcelor partner. "People desperately have to spend their cash," said steel industry consultant Michael Locker, president of Locker Associates Inc. in New York. A wave of mega-deals in the North American steel industry may be about to hit, Mr. Locker noted, with OAO Severstal of Russia, Tata or CSN making a play for a U.S. giant.
Timeline
Feb., 2006: Ipsco approached by Company A, hires Goldman Sachs and RBC Dominion Securities Inc. as advisers. May, 2006: Talks with Company A terminated. Nov., 2006: Company B offers $110 (U.S.) a share for Ipsco, rejected as undervaluing the company. Offer boosted to $115-$125 a share, then $120-$125. Turned down as still insufficient, but further talks. Jan.-Feb., 2007: SSAB Svenskt Stal AB asks Ipsco to sell plate business or negotiate joint venture. Feb. 19, 2007: Offer from Company B jumps to $127.50-$135 range. Feb. 26: Ipsco calls potential bidders, effectively starting an auction. March 28: SSAB offers $140 a share. March 28: A new bidder, Company C, arrives with a $135-a-share bid. March 30: An offer of $140 a share in cash and stock is received from Company A. April 5: Bid from Company B comes in at $135. April 12: News articles reveal that Ipsco has received an offer from Evraz Group of Russia. April 20: Fourth bidder, identified as Company D, says it's interested in pursuing a takeover. April 30: Deadline for bids. SSAB offers $145, Company A $148, Company B $143 and Company C, $135. Company D asks for time to form a consortium in order to satisfy regulatory requirements. May 2: Second round of bidding: SSAB at $151, Company A and Company B at $152, Company C at $155. Later that evening, SSAB offers $156. Ipsco asks Company C if it can top $156. Before C can reply, SSAB offers $160. Then Company C comes back at $156.05.