The BlueScope Steel Limited (ASX: BSL) share price is trading higher on Monday morning after the company announced a binding agreement to buy the second-largest metal painter in the US.
The US$500 million ($671 million) acquisition of the Coil Coatings business from Cornerstone Building Brands, Inc (NYSE:CNR) will allow BlueScope to supply another 900,000 tonnes of paint a year to that market.
The BlueScope share price is 1.76% higher to $20.84 in early trade as the company hosts a webcast to sell the merits of the takeover. In comparison, the S&P/ASX 200 Index (ASX: XJO) is trading 0.57% higher at the time of writing.
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BlueScope's acquisition hits a "sweet spot"
BlueScope's managing director Mark Vassella said this transaction hits the group's "sweet spot":
The acquisition of Coil Coatings is a significant step forward in our growth plans for North America.
It almost triples our US metallic coating and painting capacity to over 1.3 million metric tonnes per annum, from around 475,000 tonnes per annum at present, and gives us immediate and direct access to the large and growing Eastern US region.
BlueScope believes that Coil Coatings complements its existing businesses in North America. It is also consistent with its previously-flagged strategy of expanding painting operations into the eastern US region via a greenfield paint line.
How much BlueScope is paying for Coil Coatings
Further, the group believes the acquisition will generate cost savings of around US$12 million annually by year three.
While the amount may sound modest, Vassella pointed out the focus is the medium to longer-term opportunity the acquisition provides.
The price tag on Coil Coatings represents around 8.9 times CY21 pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) of $56 million.
However, the multiple is technically higher as BlueScope's calculations include the year-three synergies.
Post the takeover, Cornerstone Building will remain a key customer of the business.
Acquisition takes BlueScope's investment to $4.5bn
BlueScope will fund the acquisition from its cash holdings and said the deal will be immediately earnings per share (EPS) accretive. If all goes to plan, the transaction will be completed in calendar year 2022.
The group has been aggressively expanding into the North American market. Following the takeover of Coil Coatings, it will have invested over $4.5 billion in the region.
The BlueScope share price has been largely flat over the past 12 months, gaining around 2%. Over the same time, the ASX 200 has gained 7.5%.
