Commercial Metals Company, an Irving-based manufacturer of steel and concrete reinforcing products, announced Tuesday that it would acquire the certain U.S. assets of a Gerdau, a Brazilian operator of steel mills, for $600 million.
The deal, which is subject to regulatory approval, would give Commercial Metals an additional 33 rebar fabrication facilities and steel mills located in Knoxville, Tenn.; Jacksonville, Fla., Sayreville, N.J, and Rancho Cucamonga, Calif.
In a conference call with investors, Barbara Smith, president and CEO of Commercial Metals, said the combined company would have more capacity to serve regions of the country where demand for construction materials is growing.
She noted that Texas, California, New York and Florida are expected to be the top four states for non-residential construction starts in 2018.
“Having the larger footprint and having the larger geographic presence gives us all sorts of options to optimize within that footprint and potentially serve customers that come to CMC today but for whatever reason — because we are already running at capacity — we can’t provide them any further product,” she said.
The acquisition will add 2,700 employees to the company. It also doubles its rebar fabrication capacity, making it second only to Charlotte, N.C.-based Nucor, according to a KeyBanc analyst.
On the same call, Mary Lindsey, senior vice president and CFO, said the company plans to invest between $200 million and $250 million over five years to improve the acquired facilities and make them more efficient.
After the deal goes through, the company also expects to realize some $40 million annual in cost savings, Lindsey said.
“These are predominantly expected to result from optimizing a larger network of mills and fabrication operations to gain economies of scale and freight cost reductions,” she said.
She also noted that new tax rules will allow the company to immediately write off 100 percent of the asset purchase price.
“That combined with other aspects of the tax bill are going to increase significantly our cash flows compared to frankly what we’ve been thinking about at the beginning of this transaction,” she said.
Presented by Dallas Morning News, January 4, 2018