$32 million deal for Steel & Tube

Steel & Tube Holdings [NZX: STU] rose after the country's biggest steel distribution company said it's agreed to buy fastener distributor Manufacturing Suppliers for $32 million in a cash and scrip deal.

The Petone-based company will pay $26 million in cash and $6 million in shares for Auckland-based MSL, which is best known for its Fortress Fasteners brand, which Steel & Tube will keep, along with continuing to operate the business under the Manufacturing Suppliers name, it said in a statement. The acquisition will be funded through Steel & Tube's existing facilities and the company will provide more details once the transaction is completed in the next six weeks, chief executive Dave Taylor told BusinessDesk.

"The issue across the broader steel categories in New Zealand is that there's just far too many players and it requires some consolidation in what's a relatively small market, and we've been looking for opportunities for a wee while," Taylor said. "They (MSL) would be regarded as the leaders and the pre-eminent fastening business, so we're going to bring into Steel & Tube a good business with a good set of customers and set of competencies across the staff and we will look to expand those capabilities and expertise across the existing fastening business we have in Steel & Tube and look to leverage the combined business to go to a new level."

The acquisition is Steel & Tube's second in the past 15 months, after it bought Tata Steel (Australasia) for $28.1 million, which helped lift the company's first-half earnings 35 percent.

Taylor said Steel & Tube is still interested in acquisitions, but that the company "won't buy for the sake of buying."

The shares rose 5.7 percent to $2.79, recovering some of the 12 percent decline since June 11 as volatility in steel markets and weak iron ore prices weighed on the stock.

Grant Williamson, a director at Hamilton Hindin Greene, said the acquisition will go some way to soothing nervousness about the company's exposure to global steel markets.

"Investors will like the fact they're diversifying a little bit more," Williamson said.

Steel & Tube's Taylor said the global steel industry is contending with significant Chinese production and cheap iron ore prices, though the recent depreciation in the kiwi dollar had gone some way to mitigating that.

MSL has eight branches across the country and employs 100 staff. It stocks more than 200 million items and has 10,000 product lines.

General manager Steve Williams said MSL will be a "good fit" with Steel & Tube, which is a supplier to many of the company's suppliers.

"We look forward to strengthening the relationships with those customers and working with S&T," Williams said in an emailed statement. "It's business as usual with MSL operating as a stand-alone division of S&T Fasteners."

(BusinessDesk)