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Steel & Tube stock surges on OneSteel offer

By Paul McBeth

Monday 29th September 2008

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Shares in Steel & Tube Holdings had the biggest gain in at least five years after Australia’s OneSteel offered to buy the 49% of shares that it doesn’t already own.

OneSteel offered NZ$4.00 cash, or NZ$175 million, for the rest of Steel & Tube, a 33% premium to its price on Friday. Steel & Tube jumped 29% to $3.86 today.

Steel & Tube chief executive Nick Calavrias last month said construction activity may pick up in 2009, helped by infrastructure projects and developments related to the 2011 Rugby World Cup in Auckland. Fletcher Building last week predicted larger commercial and infrastructure developments will remain at 2008 levels even as residential construction slows.

Steel & Tube “is a solid stock with a very good outlook, as infrastructure is expected to feature,” said Alan Moore, who helps manage NZ$260 million at Milford Asset Management. “If you believe the 18 month to two year view, the New Zealand economy will start to strengthen strongly with the value of the currency falling.”

OneSteel says its offer represents a multiple of 9.6 times Steel & Tube’s 2008 pre-tax earnings. The offer will be despatched on 29 October.

Geoff Plummer, OneSteel chief executive, said the company will delist Steel & Tube if successful, ending a 41-year tenure on the New Zealand stock exchange.

“We want the freedom to spend and to act” and not be restrained by the requirements of listing rules or other shareholders, he said.

Plummer said “shareholder apathy” is the biggest risk to OneSteel’s proposal as there are no significant holders apart from his company.

OneSteel plans to retain Steel & Tube’s brand, while merging the business into its own operations.

The offer will be funded through cash flow and existing bank facilities, the company said. It expects the purchase to lift earnings in the first 12 months.

Steel & Tube’s independent directors will now seek an evaluation of the offer.

New Zealand’s economy is forecast to climb out of its recession in the fourth quarter of this year as the central bank cuts borrowing costs and the New Zealand dollar falls.

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