AKS - You heard it here first, AK STEEL is the next Steel producer to get gobbled up by a Merger. Here are the reasons below.
1. There is still too much competition in the Steel sector. If someone doesnt eat a competitor, prices will remain suppressed and product will continue to flood the market. These Steel companies are all working just not to their highest potential.
2. Get around/benefit from proposed sanctions and Tariffs. the US steel industry has worked itself into a good position if new sanctions come into effect. Raw material prices are falling and likely to stay low, while domestic supply will be restricted and there are limits to imports. This means AKS benefits for the next 2-6 years! Who wouldnt want a piece of that action!
3. Renegotiating of NAFTA starting Aug 16th. President Trump is all about American Jobs and the American Worker. This benefits AKS, this would also benefit a Merging company. If America gets a 30% tariff slapped on imported steel products ALL the steel companies will benefit. What foreign company or even a domestic company wouldn't want to be on that gravy train, almost like free money.
4. The Buyout will have to be pretty big, given all of this and done fast. Current market cap of 1.7 if you slap a 30% premium on todays price and you get about a $7 buyout price? Yeah, that is nothing. Put the merger at $11 per share and you get an instant merger that all parties will be happy with.
Who can afford to purchase AKS at $11 per share? Mind you, thats is still only a 3.5 Billion dollar valuation, well practically any publicly traded company can afford to buy AKS at that price! Heck Warren Buffet could afford to buy that with 3 months salary.
5. In North America, there really are about 5-6 steel producers, granted they all do different parts of steel, but they all do steel products. If you consolidate the steel sector and take offline the company you just gobbled up (ultimately thats is what a merging company will do in future anyways, maybe 4-5 years down the line when the market softens again) then you can keep steel product prices in a much more manageable range.
6. Of the 5-6 companies anyone would want to acquire, AKS fits the bill, especially with this new acquisition of specialized steel procuts (Precision Steel) AKS is aligning itself for a solid offering of steel products that will be relevant in the future.
7. Money is still cheap, there hasnt been much consolidation in the Steel industry in the past 10 years and the sector is due.
GLTYA
Please do your own DD, never buy sell or trade on my opinions!
