Vertical Integration

The month of February did not cast a chill over the heated acquisition market in the scrap industry. In the most prominent move, Nucor Corp., Charlotte., N.C., has signed a purchase agreement to acquire the stock of SHV North America Corp., owner of The David J. Joseph Co. (DJJ), its affiliates and real estate. The value of the deal has been set at nearly $1.44 billion.

The news came within weeks of Fort Wayne, Ind.-based Steel Dynamics Inc.’s acquisition of its long-time supplier OmniSource, also based in Fort Wayne.

Under the terms of the DJJ deal, which was expected to close by the end of February, DJJ will become a wholly owned subsidiary of Nucor Corp. and will maintain its headquarters in Cincinnati.

"We are extremely excited to announce the acquisition of a company that has been our partner in growth for the last 38 years," Daniel DiMicco, chairman, CEO and president of Nucor, says in a press release announcing the acquisition. "We are very excited that the DJJ leadership team, led by Keith Grass, will continue in their current roles. The 1,700 strong and highly successful members of the DJJ organization have always been part of the Nucor Team, but, now more than ever, they will help drive our success from within the Nucor family."

DJJ and Nucor have a history that dates back to 1969, with DJJ acting as a scrap broker for Nucor. Last year, the company brokered more than 20 million tons of ferrous scrap and more than 500 million pounds of nonferrous materials. DJJ reports that it expects to process more than 3.5 million tons of ferrous scrap in 2008. The company operates 12 shredders and 35 scrap yards.

In addition to DJJ’s scrap operations and expertise, its extensive brokerage operations provide Nucor with global sourcing of many key steelmaking raw materials. DJJ’s industrial scrap programs will provide improved channels of raw materials to Nucor.

Nucor can also benefit from DJJ’s rail services and logistics capabilities, which will allow Nucor to leverage the largest private railcar fleet in North America dedicated to scrap transportation. DJJ owns more than 2,000 scrap-related railcars and provides complete fleet management and logistics services to third parties.

The addition of DJJ to Nucor’s current scrap processing capabilities will allow the company to process about 4 million tons of ferrous scrap annually.

DJJ was founded in 1885 and currently has five main businesses: brokerage services, scrap processing, mill and industrial services, rail services and self service auto parts.

Nucor calls itself the largest purchaser of ferrous scrap in North America. The company purchased 22.8 million tons of scrap in 2007. Adding DJJ complements Nucor’s raw materials strategy, which includes the production of 6 million to 7 million tons of high-quality scrap substitutes, such as direct reduced iron (DRI) and pig iron. In December of 2006, the Nu-Iron Direct Reduced Iron plant began production in Trinidad, producing more than 1.4 million metric tons of DRI in 2007. Nu-Iron is expected to produce 1.8 million metric tons of DRI in 2008. Nucor’s total steel production in 2007 was 22.1 million tons.

Nucor’s acquisition of DJJ is just one of a number of strategic acquisitions the company has made in the downstream and upstream portions of the steel industry. After absorbing Birmingham Steel, Nucor has continued to make acquisitions, targeting related businesses, such as fabricators and distributors.

Less than two weeks after Nucor announced the DJJ acquisition, DJJ reached an agreement to acquire the assets and business of Galamba Metals Group of Kansas City, Mo. The Galamba Group will become DJJ’s fifth wholly owned regional scrap processing company.

Galamba operates 16 scrap processing facilities in Kansas, Missouri and Arkansas. The company also operates two automobile shredders.

Raynard Brown, president of Galamba, and the company’s current employees and management remain with the company.

Beyond the scope of Nucor and DJJ, recyclers ranging from AMG Resources Corp., Pittsburgh; Alter Trading Corp., St. Louis; and steelmaker-recycler Schnitzer Steel Industries have all chimed in with February acquisitions of their own.

For the time being, not just scrap metal but entire scrap companies are likely to be traded on a monthly basis.