Novolipetsk buys John Maneely in $3.5 billion deal

Russia's Novolipetsk Steel has signed a definitive agreement valued at $3.53 billion to acquire US steel pipe and tube manufacturer John Maneely Company from a shareholder group led by private equity firm Carlyle Group and the Zekelman family.

Maneely, founded in 1877, is the largest independent producer of tubular steel products in the US and has estimated annual sales of around $3 billion.

JMC's principal operating subsidiaries are Wheatland Tube and Atlas Tube, and it holds the No. 1 North American market position in each of its three core products: hollow structural sections, standard pipe and electrical conduit, according to Novolipetsk.

Annual sales have increased by $800 million, or 36%, since 2006.

"Our hard work these past few years has demonstrated that Atlas and Wheatland are formidable players in their served markets," said JMC CEO Barry Zekelman.

The acquisition fits with NLMK's strategy of portfolio diversification and downstream integration into Maneely's core markets.

The Russian steelmaker currently operates two manufacturing facilities in the US through its joint venture with Duferco Group: Duferco Farrell Corp. and Sharon Coating LLC.

"We are delighted to have secured an entry into the highly attractive US pipe and tube market," said NLMK Chairman Vladimir Lisin, "and we are confident that the incorporation of JMC's quality assets into the NLMK group will prove to be a highly attractive investment for NLMK's shareholders as well as a beneficial development for JMC's customer and employees."

Carlyle Group opts out of JMC

At the same time, the transaction marks the end of Carlyle Group's involvement after acquiring the privately-owned firm in 2006 in a deal worth approximately $550 million, and subsequently combining JMC with Atlas Tube and Sharon Tube.

The sell-off is subject to regulatory approval and is expected to close in the fourth quarter this year.

The transaction will be done on a debt-free, cash-free basis, said Novolipetsk, and will be financed from available bank commitments, including the recently established $1.6 billion pre-export finance facility and a $20 billion bridge commitment provided by Merrill Lynch, Deutsche Bank and Societe Generale.

Headquartered in Beachwood, Ohio, south of Cleveland, JMC operates 11 plants in five US states and one Canadian province and has a total annual production capacity of more than 3 million tons of steel pipe and tube.

In the 12 months ending June 30, JMC shipped 2.1 million tons of pipe and generated revenue totaling $2.4 billion and EDITDA of $485 million.

Duferco Farrell in Pennsylvania is currently the key supplier of hot-rolled coil to JMC and in particular the largest supplier of HRC to the Wheatland division, which is located nearby.

NLMK is therefore in an excellent position to extract synergies (estimated to be around $35 million per year) from the vertical integration of its steel assets in North America with JMC's low cost processing capabilities according to NLMK's statement.

Created: August 14, 2008

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