Business Context and Reporting Period
This Form 6-K filing by Ternium S.A. is dated November 27, 2011. The report discloses a strategic corporate action rather than periodic financial results. Ternium, a leading Latin American steel manufacturer with operations in Mexico and Argentina, announced the acquisition of a significant stake in Usiminas, Brazil's largest flat steel producer.
Key Financial Metrics and Transaction Details
- Acquisition Stake: Ternium, along with subsidiaries Siderar and TenarisConfab, agreed to acquire 139.7 million ordinary shares of Usiminas, representing 27.7% of voting capital.
- Transaction Price: BRL36 per ordinary share (approximately USD19.0), representing a 41% premium to Usiminas' last-six-months average U.S. dollar price.
- Total Consideration: Ternium and Siderar's share of the transaction is BRL4.1 billion (approximately USD2.2 billion).
- Financing: The acquisition will be funded through cash on hand and debt.
- Target Financials (Usiminas 2010): Net sales of BRL13.0 billion (approximately USD6.9 billion) with 9.5 million tons of crude steel capacity.
Material Changes and Strategic Impact
The filing details a material change in Ternium's corporate structure and market presence through the formation of a new control group at Usiminas. The post-transaction control group composition will be:
- Nippon Group: 46.1%
- Ternium/Tenaris Group: 43.3%
- CEU (Usiminas employees' pension fund): 10.6%
Most decisions within this control group require a 65% majority approval. This alliance is designed to enhance competitiveness in technology, quality, and cost efficiency while expanding product ranges across Latin America.
Outlook, Risks, and Contingencies
Outlook and Management Commentary: Management expects the alliance to capitalize on upstream and downstream integration opportunities and increase procurement bargaining power. The transaction provides increased access to the Brazilian steel market, which consumes 26 million tons annually and is expected to grow significantly. Closing is expected in January 2012, subject to customary conditions and corporate approvals by the Nippon Group.
Risks and Contingencies: The filing includes standard forward-looking statement disclaimers. Risks include uncertainties regarding GDP, market demand, global production capacity, tariffs, and industry cyclicality. The transaction is contingent upon applicable corporate approvals.
Investor Verification Checklist
- Verify the final closing date of the transaction, currently expected in January 2012.
- Confirm the specific debt instruments and terms used to finance the BRL4.1 billion portion of the deal.
- Monitor regulatory approvals required from Brazilian and other relevant authorities.
- Assess the impact of the 41% acquisition premium on Ternium's future earnings per share.
- Review the amended shareholders' agreement for specific governance rights and veto powers within the new control group.