U. S. Steel to Acquire National Steel Assets
Jan 9, 2003
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United States Steel Corporation announced today that it has signed an Asset Purchase Agreement (APA) with National Steel Corporation (National) to acquire substantially all of National's steelmaking and finishing assets for approximately U.S. $950 million, which includes the assumption of liabilities of approximately $200 million. Net working capital will account for at least $450 million of this amount. With these assets, U. S. Steel says it will have total annual raw steel production capability of approximately 25 million tons, making it the fifth largest steelmaker in the world.

The transaction, which is targeted for completion early in the second quarter of 2003, is contingent on the successful negotiation of a new labor contract with the United Steelworkers of America, the approval of the bankruptcy court and other customary regulatory approvals.

"The acquisition of these assets will be a significant step forward in our strategy to grow profitably and to strengthen our position as a leading global provider of high value-added steel products," said U. S. Steel Chairman Thomas J. Usher. "From the onset, the acquisition will enhance our ability to serve the current and future needs of our North American customers in key industries such as automotive, container, appliance and construction, while building upon our existing leadership position in these markets.

"I believe this acquisition is also consistent with National's objective to develop a restructuring plan that is in the best interest of all its stakeholders and with the Bush administration's call for consolidation in the domestic steel industry," he continued.

Based on a preliminary assessment, the company expects combined annual cost savings of approximately $170 million within 2 years of completing the transaction. These savings are expected to result from a number of actions including increased scheduling and operating efficiencies, the elimination of redundant overhead costs, the reduction of freight cost and the negotiation of an improved labor contract covering employees at the acquired National facilities. The transaction is expected to be accretive to U. S. Steel's earnings and cash flow within the first year.
Under the terms of the APA, U. S. Steel will acquire the following: facilities at National's two integrated steel plants, Great Lakes Steel, in Ecorse and River Rouge, MI, U.S., and the Granite City Division in Granite City, IL; the Midwest finishing facility in Portage, IN; ProCoil Corporation in Canton, MI; and various other subsidiaries; and joint-venture interests, including National's share of Double G Coatings, L.P. in Jackson, MS.

The $950-million transaction value will consist of $200 million of assumed liabilities, up to $100 million of U. S. Steel common stock, $25 million of which will be paid into an indemnity escrow account, and the balance in cash. U. S. Steel will not assume any liabilities related to pension or post- retirement benefit obligations for current National retirees and, consistent with the U. S. Bankruptcy Code, the transaction will exclude all liabilities except as have been agreed to by U. S. Steel. U. S. Steel intends to fund the cash component through a combination of existing cash balances, existing credit facilities, and the issuance of equity-linked and debt securities. As of Dec. 31, 2002, U. S. Steel's liquidity totaled over $950 million.

Under Section 363 of the Bankruptcy Code, several steps must be taken before completion of the asset purchase. National Steel will file a motion with the bankruptcy court within the next few days asking the court to approve the APA subject to establishment of a bidding procedure to allow other interested parties to bid on National's assets. National will ask the court to rule on this motion and establish a competitive bidding timeframe. U. S. Steel will use the competitive bidding period to negotiate with the United Steelworkers of America, and based on the outcome of the negotiations, will make a final decision on whether to proceed with the acquisition. The APA provides for fees of up to $15 million payable to U. S. Steel in the event the transaction does not occur under certain circumstances.

JPMorgan is acting as financial advisor to U. S. Steel on this transaction.

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