Gerdau to Acquire TAMCO - Analyst Blog

Brazilian steel producer Gerdau S.A.'s (GGB) wholly-owned subsidiary Gerdau Ameristeel entered into a definitive agreement with Ameron International, Tokyo Steel and Mitsui & Co. (U.S.A.) to acquire all the
issued and outstanding shares of TAMCO in a cash transaction worth approximately US$165 million.

Subject to regulatory and customary closing conditions, the company expects to consummate the transaction in the fourth quarter of 2010. California-based mini steel producer, TAMCO, will expand Gerdau's reach in the Western U.S. as one of the largest rebar mills in the region with an annual production capacity of 500,000 tonnes.

Gerdau S.A. is the second largest steel producer in the world. The company produces steel mostly in mini-mills and distributes its products through its own network of commercial Gerdau branches in Brazil. In the North American market, the company operates through its wholly-owned subsidiary, Gerdau Ameristeel. Gerdau S.A.'s North American facilities are based in both the U.S. and Canada.

In the second quarter of 2010, the company reported robust results with earnings per share rising to R$0.52 (US$0.29 per ADR) from R$0.27 (US$0.13 per ADR) in the comparable quarter a year ago. Gerdau's quarterly earnings results also surpassed the Zacks Consensus Estimate of US$0.25 per ADR. Higher revenue and lower expenses drive the outperformance.

Net revenue also soared 30.0% to R$8,296.0 million (US$4,608.9 million) from R$6,401.0 million (US$3,062.7 million) in the year-ago quarter. The revenue growth was primarily driven by higher shipments in the quarter.

We believe the company stands well positioned to post solid results even in the third quarter and fiscal year 2010. The outlook for the world steel market remains positive with continued recovery expected in 2010. Also the Brazilian market is expected to remain strong in 2010 with a heavy demand from the manufacturing and construction industry.

Prime competitors of the company include Companhia Siderurgica Nacional (SID) and the privately held ArcelorMittal Brasil S.A. We currently maintain a Neutral recommendation on the stock, which is in line with the Zacks #3 Rank (Hold).

 
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