This morning, metals & mining name Commercial Metals (CMC 22.97, +1.65 +7.74%) agreed to acquire certain U.S. rebar steel mill and fabrication assets from Brazilian steel producer Gerdau S.A. (GGB 3.91, +0.19 +5.11%) for $600 million in a deal which is expected to be accretive to earnings and cash flow within the first year after the transaction closes.
Making 11-month highs on the news, shares of CMC start out 2018 on a strong note. The aforementioned deal includes 33 rebar fabrication facilities in the United States, as well as steel mills located in Knoxville, Tennessee; Jacksonville, Florida; Sayreville, New Jersey and Rancho Cucamonga, California, with annual mill rolling capacity of 2.5 million tons.
Once the deal is complete, CMC will have an expanded geographic footprint in the largest construction regions in the U.S. The acquisition will increase CMC's annual rebar and fabrication capacity and allow for the more efficient utilization of its asset base. After adding the incremental 2.7 million tons of melt capacity, CMC will have about 7.2 million tons of global melt capacity at the close of the transaction.
As stated, the deal is expected to be accretive to earnings and cash flow within the first year after the transaction closes. Once fully integrated, the combined operations are expected to generate about $40 million in pre-tax operational synergies annually.
Furthermore, the deal has been approved by the boards of directors of both CMC and GGB. The closing of the transaction, which is expected to close before calendar year-end 2018, is supported by a fully committed $600 million long-term facility.
The deal comes ahead of tomorrow’s Q1 earnings, which CMC is expected to announce ahead of the market open. Recall, last period CMC announced revenue growth of about 14% to $1.26 billion on earnings of $0.07 per share.