24/7 Wall St.

Steel Dynamics, Inc. (NASDAQ:STLD) has entered a definitive agreement whereby Steel Dynamics will acquire privately held OmniSource Corp. in a deal that has been approved by the board of directors of both companies.  This merger is valued at more than $1 Billion on a stock and debt basis, with $425 million going in cash and 9.7 million STLD shares.  STLD will also acquire its liabilities of roughly $210 million.

OmniSource is said to be one of North America’s largest scrap recycling companies, a privately held company based in Fort Wayne, Indiana.  This merger is expected to close in November 2007, and while it is subject to regulatory approvals it is hard to imagine this being blocked for anything obvious.

OmniSource will operate as a subsidiary of Steel Dynamics and will continue its focus on the ferrous and nonferrous scrap processing, brokerage, and industrial scrap management needs of its customers and STLD’s existing scrap operations in Virginia and Tennessee will be consolidated into OmniSource, as will its planned scrap processing facility in Indianapolis, Indiana.

We haven’t been able to rip apart the current financials and sales of OmniSource yet and the conference call isn’t until late-morning tomorrow.  OmniSource generated $2.3 Billion in revenues off of 5.3 million tons shipped in ferrous scrap and 900 million pounds in nonferrous metals in 2006.  That compares to STLD’s 4.7 million tons in 2006 on $3.2 Billion in revenues.  On the surface it sounds like the company is getting a nice bump and that at least an American company will get to give China and India some rivalry over all the major operations around scrap metal.  If you have spoken with steel industry guys, they have been saying for about three or four years how all the scrap metal is heading for China first and India second.

Steel Dynamics closed up 1.5% at $47.41 today, about 4.5% under the $49.75 high. 

Jon C. Ogg
October 1, 2007

Jon Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.