Last November, the CEO of Big River Steel told an interviewer that the privately held steelmaker had decided to remain independent, instead of taking one of the offers the company had received from other steelmakers and financial firms. On Tuesday morning, that tune changed as Big River has agreed to form a joint venture with United States Steel Corp. (NYSE: X) in which Big River will own a 51.1% stake and U.S. Steel a 49.9% stake.
U.S. Steel is paying $700 million for its minority stake and for an option to purchase Big River’s stake within the next four years. The implied enterprise value of Big River, including an expansion project that is already under construction, is around $2.345 billion. How much of that is debt and how much is equity is unspecified.
As of last November, a subsidiary of Koch Minerals owned 40% of Big River and private equity firm TPG Capital owned 20%. Upon completion of the transaction, KM BRS, a subsidiary of Koch Minerals, and TPG Furnace, an affiliate TPG, will remain preferred equity holders in Big River.
Big River built, owns and operates the only LEED-certified flat-rolled steel mill in North America. LEED-certification (Leadership in Energy and Environmental Design) is a widely used green building rating system. According to a company brochure, the mill produces 65% less carbon dioxide emissions than a typical integrated steel mill.
David B. Burritt, president and CEO of U.S. Steel, commented:
We have been investing in leading technology and advanced manufacturing so that we can assemble a portfolio of competitive assets with distinct advantages to serve strategic markets to better position U. S. Steel to be an industry leader in delivering high-quality, value-added products.
Big River CEO David Stickler added:
After just over two years of operations, we have built a unique platform that features the most advanced technology in our industry, and the very finest steel technicians in the business. We have always called ourselves a ‘technology company that just happens to make steel.’ In U. S. Steel, we have a likeminded technology-focused partner with an enduring tradition of excellence and a commitment to innovation.
U.S. Steel plans to increase its asset-backed lending facility by $500 million and to draw on the $2 billion facility to fund the Big River transaction. The deal is expected to close on October 31, 2019.
Shares of U.S. Steel popped by more than 7% in the late morning Tuesday to $12.39, in a 52-week range of $10.16 to $30.91. The stock’s 12-month consensus price target is $11.00.
One could argue that U.S. Steel had to do something, anything, to stop a slide that has seen its share price drop two-thirds of its value. The 52-week low was posted last week, so the transaction with Big River did not arrive a moment too soon.