Sources: Big River Steel reviewing ‘strategic alternatives,’ fielding offers for possible sale

by Wesley Brown (wesbrocomm@gmail.com) 4,266 views 

Several high-profile steelmakers and investment groups are said to be bidding for the assets of Big River Steel LLC in Northeast Arkansas, as billions of dollars pour into the industry after President Donald Trump imposed tariffs on cheap steel imports from China and U.S. allies.

In a response to Talk Business & Politics, a Big River spokesperson said the company was fielding funding offers and reviewing “strategic alternatives” amid the domestic steel industry’s recent upswing as the gap between U.S. and international steel prices has widened.

Since the Trump administration in March imposed $200 billion in tariffs on steel and aluminum against China and U.S. allies in Europe, Canada and Mexico, the U.S. has collected an extra $1.4 billion in revenue, Department of Commerce data show. As talks continue that could impose further tariffs on China, administration officials estimate another $6 billion could be collected by the end of 2018.

“Big River Steel is in the midst of a historic ramp up in terms of both product capability and profitability,” said the company spokesperson, who preferred to go unnamed. “This success has attracted the attention of the world’s steelmaking and financial communities resulting in some looking to align with Big River Steel. As a growth-oriented company, Big River Steel is constantly evaluating various strategic options and funding alternatives.”

In Wall Street parlance, large companies exploring strategic alternatives usually hire a financial advisor to assist the company in reviewing offers and handling the auction process. For Big River, that would likely include setting up a virtual data room or scheduling site visits that allow serious bidders to conduct due diligence on the finances and operations of the company’s sprawling 1,300-acre site in steel-rich Mississippi County.

Another source interviewed by Talk Business & Politics who is familiar with the bidding process said several serious and highly-placed bidders have submitted proposals to the privately-held Arkansas steelmaker and made visits to the company’s Osceola site. Among the key bidders that have shown interest include Nucor Corp., Fort Wayne, Ind.-based Steel Dynamics Inc., and other top bidders that include a consortium of domestic and international steel producers and top Wall Street investment firms, those sources said.

In April, Big River officials also signed an option with economic development officials in Brownsville, Texas, to build a $1.6 billion steel mill in south Texas, which will be modeled after the Arkansas plant. Also, Big River Steel announced just a month ago it had closed on a $1.225 billion debt-financing package consisting of a $600 million senior note due by 2025, a six-year $400 million secured term loan and a five-year asset-back lending arrangement. Those proceeds will be used to finance the company’s outstanding debt as interest rates begin to climb, and for general corporate and working capital purposes, company officials said.

If a sale is to go through, which is still not a certainty, according to several steel industry sources interviewed by Talk Business & Politics, initial investors in the project would be rewarded with a big premium if the closing price is anywhere near the $3 billion-plus asking price floated by several steel analysts and industry experts.

Arkansas Economic Development Commission Director Mike Preston told Talk Business & Politics the state is protected with respect to previous incentives provided to BRS. Besides the $125 million bond issue that includes a $75 million grant and $50 million loan that has since been paid off, the state’s most expensive superproject also received nearly $200 million in local and state incentives that are tied to measurable payroll and workforce goals.

“Big River Steel continues to exceed expectations and outperform initial commitments. It’s no surprise that companies are looking for strategic partnerships within the booming steel industry. The State of Arkansas is protected by Amendment 82 provisions as they pertain to incentives agreements with BRS, so we have no qualms about the state’s investment should new opportunities arise. We look forward to their continued growth and that of the steel industry in Arkansas as a whole,” Preston said.

CORRENTI INFLUENCE
Originally, former Big River Steel CEO John Correnti convinced Germany-based financial giant KfW IPEX-Bank to make the ground-floor investment of $800 million to finance production facilities for Big River Steel, before getting assurances from former Gov. Mike Beebe and then-AEDC Director Grant Tennille that the political end of the deal could be completed with the Arkansas Legislature.

In January 2013, Beebe called a special session to make first use of the new superproject-focused Amendment 82 to approve $125 million in bonds to build the Mississippi County steel mill. With the state’s backing and the initial investment to get the project off the ground in May 2015, Correnti went to work to sign on equity investors to fund the operations of the $1.3 billion development.

The biggest stake was taken by Koch Minerals LLC, the Wichita, Kan.-based commodities and trading investment vehicle owned by the billionaire brothers Bill and Charles Koch that took a 40% interest in the project. Besides the Koch investment, the Arkansas Teacher Retirement System (ATRS) decided to take a 20% interest in the project at a cost of $60 million with an option to invest up to $125 million.

San Francisco-based TPG Capital, the same privately-held investment group that funded the first $25 billion buyout of the former Alltel Corp. in May 2007 along with Goldman Sachs, also has a 20% stake in the Arkansas steel project. Although Correnti died three years ago, his family’s Global Principal Partners investment group that is closely aligned with current Big River Steel CEO David Stickler still retains the remaining 20% stake.

Most of those key investors referred all comments concerning a possible sale back to Big River Steel officials. Kfw spokesman Philipp Kielbassa said he could not provide any financial information concerning the Big River Steel project and the company’s 10-year, $800 million loan.

Koch Industries spokesman Rob Carlton told Talk Business & Politics his company does not “respond to questions about deals, or rumors of deals, that we may or may not be involved in.” ATRS Executive Director George Hopkins said the state’s largest public pension fund has not seen any proposals related to selling its ownership position in Big River Steel.

RIVALS SEEN AS POSSIBLE BIDDERS
On the buy side of a possible deal, publicly traded SDI and Nucor have also been tight-lipped about acquisition opportunities, although both companies are flush with cash and have shown interest in expansion projects and buyouts in recent months.

In June, Steel Dynamics, one of the largest U.S. steel producers and metal recyclers, completed a $400 million acquisition of Heartland Steel Processing in the company’s quest to broaden its product portfolio by expanding its cold flat roll steel capacity to 8.4 million tons. A month later, the Indiana-based steel producer doubled its profits to nearly $363 million as demand and product pricing across the entire steel industry resulted in record quarterly steel shipments and significant margin expansions, company officials said.

About the same time, Nucor announced plans in early May to expand the company’s sheet cold mill facility in Hickman, Ark., with a new galvanizing line by the first half of 2021. That $240 million investment will add 100 new jobs to the company’s 1,700-person workforce in Mississippi County, improving Nucor’s annual steel producing capacity by 500,000 tons.

Like rival SDI, Nucor booked its highest quarterly profits in the company’s history at $683 million, which more than doubled the $323 million total in the second quarter of 2017. Those record earnings have left the North Carolina steelmaker with $1.5 billion in cash on hand, a credit line of the same amount and hundreds of millions more from the 2017 corporate tax cut.

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