OneSteel, Smorgon Ready To Go?

By Glenn Dyer | More Articles by Glenn Dyer

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The ACCC won’t stand in the way of the restructured deal which will see a joint venture between OneSteel and Smorgon Steel Group.

The competition regulator said it wouldn’t oppose the plan, revealed in December, whereby OneSteel (OST) plans to acquire about $1.1 billion in Smorgon (SSX) assets, but not its distribution business.

The pair also will create a stand-alone joint venture to manufacture structural pipes and tubes, producing more than 500,000 tonnes a year and realising $10 million to $20 million in annual savings.

That was a re-working of the first deal: a full merger with some asset sales to satisfy the ACCC. That was announced midway through last year at a value of $1.6 billion.

A lightning raid by the country’s other steel major, BlueScope Steel saw it snatch a 20 per cent stake in Smorgon and then apply tremendous pressure to be dealt into any deal.

In the meantime the ACCC said it was inclined to oppose the original merger and when OST, SSC and BlueScope couldn’t agree on any shape of a deal, OneSteel and Smorgon decided to restructure the deal and reduce the competition problems and let BlueScope go hang itself.

In reality though the decision was an attempt to get BlueScope back to the negotiating table but that didn’t eventuate.

Now the ACCC has blessed the new deal with chairman saying market inquiries indicated that the pipe and tube products which the joint venture will produce are currently imported in significant quantities into Australia.

“The ACCC took into consideration the significant increase in the volume of imports in recent times and the increasing role they have played in competition in the relevant markets,” he said.

“In addition, post-joint venture there will remain an independent domestic producer of pipe and tube products in Orrcon.

“The ACCC considers that the presence of Orrcon in conjunction with the availability of imported pipe and tube products is likely to act as a strong competitive constraint on the joint venture.”

The ACCC said it had considered the role of anti-dumping applications on competition in pipe and tube markets.

But as the parties had offered an undertaking relating to this issue, it had formed the view that past anti-dumping actions did not appear to have impacted significantly on the ability of imports to compete in the market.

“Further, the ACCC did not consider that the proposed joint venture would provide the parties with any increased ability to inhibit imports by means of making anti-dumping applications,” Mr Samuel said.

“As such, the ACCC did not consider it necessary to accept the undertaking offered by OneSteel and Smorgon.”

Both companies have some notoriety for attempting to use the anti-dumping mechanism to try and control to flow of imports into Australia.

The ACCC added that it will consider any further arrangements between OneSteel and Smorgon when detailed proposals are put forward by the parties.

This could come in the next couple of days after both companies decide whether to use the scheme of arrangement mechanism proposed in the first merger, or to do a more conventional merger and spin off.

The scheme needs 75 per cent approval and would be in danger from the BlueScope holding, the more conventional method will mean a 50 per cent vote of shareholders.

Under the December proposal, Smorgon Steel will continue as an independent, listed company with its distribution assets.

Its shareholders will retain their shares, receive a 6.2 cents-a-share dividend and between 0.2450 and 0.2711 OneSteel shares per Smorgon share – or roughly one OneSteel share for about every four Smorgon shares held.

Now its up to BlueScope: having sunk the best part of $320 million or so into SSX shares it can sell into the market and probably take a small loss, accept the OST offer and end up a shareholder in the newly merged entity and ‘enjoy’ whatever competition concerns might flow from that.

Or continue to block the deal. BlueScope was saying late yesterday that it still had concerns about the proposed deal but nothing more.

BlueScope CEO Kirby Adams is due to retire this year: It has been suggested his departure (or even impending departure) might enable a resolution of this imbroglio.

Smorgon’s shares rose 1c to $1.84 after the ACCC decision was revealed, OneSteel added 9c cents to $4.73 and BlueScope fell 11c to $8.62.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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