US Steel Acquires Lone Star Steel (X, LSS)

Lone Star Steel (LSS) is trading up 37% pre-market because US Steel (X) is acquiring Lone Star for $67.50 in cash.  US Steel (X) is saying that the merger will be accretive to earnings before the initial adjustments from the merger.  Lone Star is more of an end products company that manufacturer of welded oilfield tubular goods, so it isn’t in the raw steel production area.  US Steel says this will make it the largest tubular producer in the US now.

U. S. Steel is paying an aggregate value of approximately $2.1 billion, a premium of approximately 39% to Lone Star’s closing share price of $48.45 on March 28, 2007, and a premium of approximately 43% to its 90- day average trading price. U. S. Steel will pay for the acquisition through a combination of cash on hand and financing obtained under its existing receivables purchase program and three new fully committed bank credit facilities.  The transaction is subject to the approval of Lone Star’s shareholders and other customary closing conditions, including regulatory approvals, and is expected to close in the second or third quarter of 2007.

U.S. Steel (X) has been considered a potential acquisition candidate on its own, and now this will change the balance sheet structure.  Its own market cap is $11.5 Billion and this will currently lower its cash position and increase liabilities.  When the full details are known there on the real payment breakdown, then there will be a clearer picture about US Steel’s possibilities of being a target itself.

Jon C. Ogg
March 29, 2007