The Rising Influence of Rising Affluence

[jbog]

I find LG's message to be consistent

From the 1st Q report:

Mr. Goncalves added: “In the first quarter, we returned capital to our shareholders at an aggressive rate. Our stock was cheap throughout the quarter and remains so, driving the exhaustion of our previous $1 billion share repurchase authorization and the commencement of another larger one. Buying our own stock is clearly a better use of capital than any M&A opportunities at current valuations -- so that's our primary focus."

So after paying close to $19 share buying 30 million shares the board approves another $1.5b for further possible purchases. In the 1st Q, HRC was in the $900 to $1,100 price and today it's sitting in the mid $600 range. Do these people not have a feel of the market?

Then yesterday, they announce they're going to pay a 87% premium to buy a steel company that happened to go bankrupt twice during the previous 16 years. 87% is in the ballpark of USS's premium which LG classified as ridiculous.

Going forward, the Company has a stated target to maintain net debt at less than two and a half times the Company's trailing twelve months Adjusted EBITDA. The same leverage target would apply in the event of potential future M&A. As of March 31, 2024, the Company's net debt3 was $3.6 billion, well below the target level.

The trailing 4 quarters starting with Q2, 2023 are $775m, $614m, $279m and last Q was $414m. That means the trailing 12 month EBITDA is a tad over $2.0 Billion. Cliffs is carrying $3.6 B in debt so adding $2,x Bil in additional debt will exceed the 2.5x net debt projection. Keep in mind the path in EBITDA has declined rapidly over the last year so who knows what multiple they'll end up with over the short term.

I'm not concluding that these deals are wrong or bad, only that the landscape hasn't followed a press release that isn't 3 months old.