Pittsburgh-based United States Steel Corp. announced a joint venture partnership agreement under which it took the first step towards acquiring Osceola, Ark.-based 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 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 flat-rolled mill in Northeast Arkansas. Big River produces a wide product spectrum including advanced automotive steels and electrical steels, and provides products and services to the automotive, energy, construction and agricultural industries. Big River’s Phase II-A expansion is expected to double the mill’s hot-rolled steel production capacity to 3.3 million tons annually.
“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 Burritt, president and CEO at 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.”
U.S. Steel announced the transaction minimizes the risk of operational and financial execution while maximizing the potential for value creation. The transaction provides numerous strategic and financial benefits to U. S. Steel, some of which will begin to be implemented immediately upon the closing of the transaction, while others would become fully realized upon full ownership of Big River. Benefits include:
- Strengthens U. S. Steel’s competitive positioning and establishes a 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, 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 strategic investments in advanced high-strength steel (AHSS) in Ohio, electrical steel line in Slovakia, electric arc furnace in Alabama, and 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 re-scoping 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 research and development resources and understanding of customers in key strategic markets that continue to grow profitably.
“U. S. Steel’s decision to partner with us through this investment in Big River is a decisive vote of confidence in our company, our vision and our people,” said Dave Stickler, CEO at Big River. “After just over two years of operations, we have built a unique platform that features the most advanced technology in our industry, and the very finest steel technicians in the business. We have always called ourselves a ‘technology company that just happens to make steel.’ In U. S. Steel, we have a like-minded technology-focused partner with an enduring tradition of excellence and a commitment to innovation. We are very excited about the possibility for what we can do together. As the newest steel production facility in North America, I could not be more proud to be partnering with a company started by Andrew Carnegie more than 118 years ago.”
Dan Murray, of KM BRS LLC (a subsidiary of Wichita, Kan.-based Koch Minerals LLC), and chairman of Big River said, “We appreciate the opportunity to be a part of this exciting transaction that combines Big River’s state-of-the art, LEED-certified steel-making technology and U. S. Steel’s experience and demonstrated know-how.” Upon the completion of the transaction, KM BRS, and Fort Worth, Texas-based TPG Furnace LP (an affiliate of TPG Growth) would remain preferred equity holders of Big River.
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 up-sized asset-backed lending facility to fund the transaction. The up-sized asset-backed lending facility was committed by Barclays Capital. Closing of the transaction is anticipated on Oct. 31, subject to satisfaction of customary closing conditions. For additional information, visit ussteel.com/big-river-investment.