The complex merger and split up of Smorgon Steel between OneSteel and BlueScope remains alive, but just how alive is the key question after the ACCC delayed its decision on the deal yesterday.
The nature of the delay seems to revolve around the effectiveness of steel imports as competition to the enhanced market position the merger would place OneSteel, and especially BlueScope, from what the ACCC statement didn’t say.
“The Australian Competition and Consumer Commission today announced that it was continuing discussions with the parties involved in the proposals to acquire Smorgon.
“The focus of those discussions will be to address unresolved issues between the ACCC and parties that relate to the effectiveness of imports as a competitive constraint.
“The ACCC expects to announce a decision shortly, subject to the progress and the outcome of those discussions.”
Shortly wasn’t defined so it would seem the problems could be near solution, or they may be so hard that the Commission is giving the parties one last chance to enhance their offer before blocking it partially or wholly.
The original merger deal between OneSteel (OST) and Smorgon (SSX) was announced in late June 2006 but the deal was crashed by BlueScope which grabbed a 19.9 per cent stake in SSX to try and give itself a seat at the table.
The ACCC said no to the merger in its original structure so the two companies went back to the drawing boards, thought up a new structure, had tense on, off, on talks with BSL before reaching broad agreement on carving up SSX.
The ACCC blessed the merger of OST and SSX’s tube business but said it would assess the larger part of the proposed deal.
In March that emerged as BlueScope buying Smorgon’s distribution business for around $700 million, with the remainder of Smorgon’s assets being bought by OneSteel, in a $1.1 billion deal through a scheme of arrangement.
BlueScope agreed to support the merger with its 19.98 per cent stake in SSX.
The fallback position was SSX selling around $1.1 billion of assets to OST and leaving its distribution business listed, with BSL owning a blocking stake.
There are problems with the so-called plan A with BSL controlling the distribution business.
Most notable is the product lines involved and BSL’s strong position in the Australian steel products market and its use of anti-dumping actions to try and limit the penetration of imports (especially from China, Japan, South Korea and Taiwan) into the market areas where it is strong, such as rolled coil products.
The fact that the ACCC has specified imports “as a competitive restraint’ would indicate it is having problems approving the sale of the distribution business to BSL because of a lack of commitment on the imports question and a lack of certainty on the appropriateness of BSL’s high market shares.
If that is the case, plan B might be the go for OST and SSX, but the question of the blocking stake in the listed distribution business, might continue to be a worry to the ACCC.
The three companies issued a joint statement yesterday afternoon supporting the merger idea:
“Smorgon Steel, OneSteel and BlueScope Steel see benefits accruing to the customers, suppliers employees and shareholders of each company from completion of the Merger and the BlueScope Steel Acquisition, and remain committed to bring the Merger and the BlueScope Steel Acquisition before a meeting of Smorgon Steel’s shareholders at the earliest possible date.”
OST shares closed 4c higher at a new all time high of $6.58, SSX shares ended at $2.64 up 10c but BSL shares lost 22c as the market took the company to be a possible loser with the shares finishing at $11.63
