Newsworthy

Metals, Mergers & Acquisitions

Nippon Steel to acquire US Steel for $14.9 billion; deal scrutinized

United States Steel Corp. ended months of speculation, announcing Dec. 18, 2023, that Nippon Steel Corp. (NSC), based in Tokyo, will acquire the company in an all-cash transaction of $55 per share, representing an equity value of about $14.1 billion, plus the assumption of debt, for a total enterprise value of $14.9 billion. The deal was approved unanimously by the boards of directors of NSC and U.S. Steel.

The $55-per-share purchase price represents a 40 percent premium to U.S. Steel’s closing stock price as of Dec. 15 of last year and was more than the $35-per-share cash-and-stock bid Cleveland-Cliffs made in August.

In late August, U.S. Steel’s board announced it was undertaking a strategic alternatives process to consider an undisclosed number of statements of interest from outside companies.

Other bidders emerged, including Pennsylvania-based steel service center Esmark, which quickly dropped out, and subsequent unconfirmed reports identified potential bidders that included Luxembourg-based ArcelorMittal and Canada-based Stelco Holdings, which at one time was a subsidiary of U.S. Steel.

If Cleveland-Cliffs had been successful, the move would have fully consolidated blast furnace/basic oxygen furnace steelmaking capacity in the U.S.

Under the terms of the NSC transaction, U.S. Steel will retain its name, brand and headquarters in Pittsburgh.

NSC will fund the transaction through proceeds mainly from borrowings from certain Japanese banks and secured financing commitments.

The transaction is subject to approval by U.S. Steel’s shareholders, receipt of customary regulatory approvals and other customary closing conditions.

U.S. Steel says it expected the transaction to close in the second or third quarter of this year, but, according to a January report from Bloomberg, the U.S. national security review of the transaction could extend into 2025. More than a half dozen U.S. senators, both Democratic and Republican, have urged regulators to either scrutinize or negate the deal.

However, Wilbur Ross, who served as commerce secretary in Trump’s administration, wrote in the Wall Street Journal that there is “nothing in the deal from which the U.S. needs defending.”

The interagency panel led by the Treasury Department can approve, block or amend the deal on national security grounds or send it to President Joe Biden for a decision.

This past December, the White House said the deal deserves “serious scrutiny,” a statement that earned praise from the United Steelworkers (USW) union, Bloomberg reports.

In mid-January, The Pittsburgh Business Times reported the USW filed grievances against U.S. Steel, alleging the steelmaker violated the terms of its contract with the union when it agreed to the deal with NSC.

According to the report, the USW says it wasn’t convinced a holding company based in Houston, Nippon Steel North America, could successfully and for the long term meet the terms of the four-year contract that continues even with a U.S. Steel sale.

If the transaction is finalized, NSC says its expected total annual crude steel capacity will reach 86 million metric tons, accelerating progress toward its goal of 100 million metric tons of global capacity annually by adding an integrated production framework in “sectors in which our technologies and products are appreciated.”

Plastics

CalRecycle selects first PRO

California’s Department of Resources Recycling and Recovery (CalRecycle) reports that Circular Action Alliance (CAA) has been approved to serve as the first producer responsibility organization (PRO) for the implementation of SB 54, which introduces an extended producer responsibility (EPR) program for single-use packaging and plastic food-ware waste.

The PRO responsibilities are noted in Article 2 of the statute (PRC 42050 to PRC 42057) and include:

• developing and submitting a producer responsibility plan and annual budget;
• submitting annual reports to CalRecycle describing how the PRO is implementing the plan and how it has complied with the requirements of the statute and regulations;
• registering with CalRecycle’s Recycling and Disposal Reporting System or an analogous system developed by CalRecycle and reporting specified data;
• providing contact information for participant producers to CalRecycle upon the department’s request;
• annually auditing the organization’s books and providing a copy of the audit to CalRecycle for review;
• setting fees for participant producers to be used to fund the budget, pay the California Circular Economy Administrative Fee and pay the California Plastic Pollution Mitigation Fund; and
• developing and implementing a source-reduction plan and submitting specified data.

As the inaugural PRO, CAA, a 501(c)(3) that was founded in 2022 by companies that include Amazon, The Coca-Cola Co., Unilever and Walmart, says it will help all producers of single-use packaging and plastic single-use food service ware meet the requirements of California’s EPR law and advance the state’s goals of preventing plastic pollution and building a circular economy.

Metals, Mergers & Acquisitions

Waupaca Foundry to be acquired by private investment firm Monomoy Capital Partners

Waupaca Foundry Inc., based in Waupaca, Wisconsin, will be acquired by Monomoy Capital Partners, a private investment firm with offices in Connecticut and New York. Waupaca Foundry currently is owned by Proterial Ltd., formerly Hitachi Metals Group, a Tokyo-based international producer of high-performance materials for mobility, industrial infrastructure and electronics. After the purchase, the company will continue to operate under its current management team, led by President, CEO and Chief Operating Officer Michael Nikolai.

The transaction is expected to close in early 2024 and is subject to customary closing conditions. Terms of the sale have not been disclosed.

Waupaca Foundry is a leading supplier of cast and machined iron castings in North America, producing iron castings largely from scrap metal for use in the transportation, construction, agriculture and industrial markets. The company employs more than 4,000 people and operates five iron casting foundries and two machining facilities in Wisconsin, Indiana and Tennessee, as well as a plant in Ironwood, Michigan, where castings produced at its Waupaca foundries are cleaned and finished. It has 1.4 million tons of capacity, making it one of the largest metal casting suppliers globally.

“Waupaca Foundry is excited to start a new chapter with Monomoy, an experienced, operationally focused investment group, to continue to invest and grow our commitment to our customers, suppliers and employees,” Nikolai says.

BMO Capital Markets Corp. provided debt financing for the transaction and served as exclusive financial advisor to Monomoy on the transaction, while Kirkland & Ellis LLP provided legal counsel. JPMorgan Securities LLC and Moelis & Co. LLC served as financial advisors, and Ropes & Gray LLP served as legal counsel to Waupaca Foundry.

Paper

Smurfit Kappa shareholder expresses ‘reservations’ with WestRock deal

A London-based activist fund has sent a public letter to the Smurfit Kappa board of directors expressing “reservations” about its pending merger with paper and packaging company WestRock Co. and asking Smurfit Kappa to consider “strategic alternatives.”

PrimeStone Capital, which owns approximately 0.8 percent of Smurfit Kappa’s issued shares, penned the letter Dec. 21, 2023, to the Smurfit Kappa Group board of directors as well as the Dublin-based packaging producer’s CEO Tony Smurfit and Chief Financial Officer Ken Bowles.

The companies officially struck a deal Sept. 12, 2023, in which Smurfit Kappa is to purchase Atlanta-based WestRock for $11.2 billion to create what is expected to be the largest paper company in the world—Smurfit WestRock—with a combined adjusted annual revenue of approximately $34 billion. The deal was expected to close in the second quarter of this year.

But PrimeStone has questioned the “strategic rationale” of the merger and says, “The proposed transaction presents insignificant financial benefits to [Smurfit Kappa Group’s] shareholders.”

The group lists “paper exposure” as a flaw in the deal, stating, “WestRock has a massive long paper exposure, which deviates from the industry’s proven ‘integrated model,’ a model [Smurfit Kappa] and other successful companies like [Packaging Corp. of America] have been following for decades.”

PrimeStone also says WestRock’s asset base is of “significantly lower quality” than that of Smurfit Kappa’s competitors, noting it has been “underinvested for a decade” and that its upgrade will require large sums of capital. The group also claims WestRock management has “not been effective in creating value” and questions its business composition and opportunity for synergy with minimal geographic overlap.

“Overall, the WestRock transaction risks deteriorating [Smurfit Kappa’s] business profile by creating a higher cost, less integrated company [while] increasing leverage for modest financial benefits for [Smurfit Kappa’s] shareholders,” the group writes.

Most importantly, PrimeStone says, it believes “attractive alternatives” might be available, including remaining a standalone company or merging with International Paper, a deal that first was on the table in 2018.

Municipal

Report identifies gaps in US residential recycling systems

Only 21 percent of residential recyclables are being recycled in the U.S., according to a report from The Recycling Partnership (TRP), Washington, titled “State of Recycling: Present and Future of Residential Recycling in the U.S.,” which also identifies the gaps in the residential recycling systems. The report suggests that extended producer responsibility policies and proactive industry investment can address these gaps.

The report compares the current state of residential recycling with five requirements TRP has determined are necessary for a truly efficient system: designing all packaging to be recyclable, giving all households access to recycling, fully engaging residents, material recovery facilities that can effectively process recyclables and sufficient end markets for recyclables. It is based on multiyear field measurement studies conducted across the U.S. and TRP’s national database using an updated methodology that tracks materials throughout the system.

According to the report, every material type is under-recycled: 7 out of 10 cardboard boxes, 3 out of 4 milk jugs, 4 out of 5 steel cans, 3 out of 4 tons of mixed paper and 7 out of 10 glass and polyethylene terephthalate bottles and aluminum cans are lost to trash in homes because not enough households have recycling services, while those that do receive insufficient communication about how to recycle.

TRP says 73 percent of all U.S. households have recycling access. While 85 percent of single-family homes have recycling access, only 37 percent of multifamily homes do, meaning nearly 20 million households are effectively excluded from recycling.

Alabama, Louisiana, Mississippi, Montana and Nebraska have residential recycling rates below 10 percent, while California, Connecticut, New York and Oregon have rates of 30 percent or above, according to the report.