BREAKINGVIEWS-Steel M&A gets a new punchy cross-border bid

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Antony Currie

MELBOURNE, Jan 6 (Reuters Breakingviews) - A new year brings a new punchy offer for a steel company. Nippon Steel's 5401.T near-$15 billion takeover of U.S. Steel finally went through in 2025 after U.S. President Donald Trump demanded some hefty concessions despite the buyer's return on investment looking as low as 5%. Now Melbourne-based BlueScope Steel BSL.AX is up for grabs: the company said on Monday that it received a A$13.2 billion ($8.88 billion) all-cash proposal from Australian conglomerate SGH SGH.AX and Steel Dynamics STLD.O of Fort Wayne, Indiana. That's a 27% premium and values the enterprise they want to carve up at 9.5 times EBITDA. On that basis, like Nippon Steel before them, the numbers don't yet add up.

SGH and Steel Dynamics are playing a bit loose with the data to make their proposal, lodged last month and made public on Monday, look so generous. The two are using the numbers for BlueScope's financial year to the end of last June, which was not a great one for the company. And it also makes their offer look a tad crazy: the return on investment using figures for that 12-month period would be just 4%, way below the target's 9.5% cost of capital, per LSEG.

BlueScope's income is set to improve substantially this financial year, however, as the turnaround plan instituted by new CEO Tania Archibald and her predecessor Mark Vassella takes hold. Earnings before interest and taxes are set to rocket by 53% to more than A$1.1 billion, per analyst estimates compiled by LSEG. That's still only a 6.5% return, though it could rise to 8.5% by 2028, assuming analysts have correctly foreseen the future.

That means the consortium, which will split the company up by its U.S. and non-U.S. operations, will have to find some decent cost cuts to get their investment to add up financially. Steel Dynamics should be able to find some – most of BlueScope's assets are Stateside, after all; SGH would have to rely on finding less obvious inefficiencies to cut, as it doesn't own any steel businesses.

Yet BlueScope on Monday revealed it has already rejected three offers from Steel Dynamics since late 2024. One of those was for A$29 a share, just a buck lower than what it's putting on the table with new partner SGH. That suggests the duo will need to add more fuel to the fire to win over its target's board – making a good return even harder to hit.

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CONTEXT NEWS

BlueScope Steel on January 5 said in a filing with the Australian Securities Exchange that on December 12 it received an unsolicited, non-binding and indicative proposal to buy the company at an equity value of A$13.2 billion ($8.85 billion), or A$30 a share. The bidders are Australian conglomerate SGH and U.S. producer Steel Dynamics.

The duo is offering a 27% premium to the stock's price when the proposal was submitted.

BlueScope also said it had rejected three previous proposals from Steel Dynamics since late 2024, the highest of which valued the target at A$29 a share. BlueScope's shares rose about 20% to $29.55 by mid-afternoon on January 6.

(Editing by Una Galani; Production by Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on CURRIE/antony.currie@thomsonreuters.com))