United States Steel Corporation announced October 1st a joint venture partnership agreement under which it has taken the first step towards acquiring Big River Steel through the purchase of a 49.9 percent ownership interest at a purchase price of approximately $700 million in cash, with a call option to acquire the remaining 50.1 percent within the next four years.
U.S. Steel has committed financing to execute the transaction. The implied enterprise value of Big River, including the expected completion of its Phase II-A expansion, which is fully funded and already under construction, is approximately $2.325 billion.
Big River operates a LEED-certified, Flex Mill™ in northeast Arkansas that is the newest and most advanced flat-rolled mill in North America. Big River’s technological leadership allows it to produce a wide product spectrum, including advanced automotive steels and electrical steels, and provide high-quality products and services to discerning customers in the automotive, energy, construction and agricultural industries. Big River’s recently announced Phase II-A expansion is expected to double the mill’s hot-rolled steel production capacity to 3.3 million tons annually, establishing it as one of the largest EAF-based flat-rolled mills in North America.
“Our new partnership with Big River is designed to accelerate our strategy to offer our customers the ‘best of both’ by bringing together the capabilities of integrated and mini mill steel production,” said David B. Burritt, president and chief executive officer of U.S. Steel. “Big River operates the most advanced, state-of-the-art and sustainable mill in North America, and our investment would ultimately strengthen our competitive positioning in highly strategic steel-end markets, creating an unmatched value proposition for our stakeholders.”
This transaction minimizes the risk of operational and financial execution while maximizing the potential for value creation. This transaction provides numerous strategic and financial benefits to U.S. Steel, some of which will begin to be implemented immediately upon the closing of this transaction, while others would become fully realized upon full ownership of Big River.
•Strengthens U.S. Steel’s competitive positioning and establishes an unparalleled product platform in strategic, high-margin end-markets, including energy, infrastructure and automotive.
•Reshapes U.S. Steel’s footprint in the flat-rolled segment to create a more nimble, agile and customer-focused organization with new presence to serve growing U.S. and Mexico markets.
•Complements U.S. Steel’s existing capabilities, as well as U.S. Steel’s previously announced strategic investments in advanced high-strength steel (AHSS) in Ohio, electrical steel line in Slovakia, Electric Arc Furnace in Alabama, and best of breed Endless Casting and Rolling Technology in Pennsylvania.
•Increases profitability, predictability and cash flow generation through the business cycle due to Big River’s low-cost position, highly variable cost structure and low sustaining capex requirements.
•Positions U.S. Steel to achieve as much as $1 billion in capital and operational cash improvements by 2022 through activities such as rescoping asset revitalization investments, reducing fixed costs and enhancing its ability to pursue opportunities to extract incremental value from excess iron ore pellets.
•Enhances U.S. Steel’s talent through the addition of Big River’s experienced team with an entrepreneurial culture rooted in technology and leverages over a century of making steel by U.S. Steel, including deep Research & Development resources and understanding of customers in key strategic markets that continue to grow profitably.
Terms of the Transaction and Path to Full Ownership
Under the terms of the transaction, the companies will form a joint venture where U.S. Steel would purchase a 49.9 percent minority ownership interest with an option to acquire the remaining 50.1 percent. The transaction includes a call option that gives U.S. Steel the right to acquire the remaining equity of Big River within four years at an agreed-upon price formula based on Big River’s achievement of certain metrics, including with respect to free cash flow, product development, safety and completion of a proposed expansion of the company’s existing manufacturing line.
U.S. Steel has committed financing to execute the transaction. U.S. Steel intends to increase its existing $1.5 billion asset-backed lending facility to $2 billion and draw on the upsized asset-backed lending facility to fund the transaction. The upsized asset-backed lending facility has been fully committed by Barclays Capital.
Timing and Approvals
Closing of the transaction is anticipated on October 31, 2019, subject to satisfaction of customary closing conditions.