Under joint venture partnership agreement, United States Steel Corp. has taken first step toward acquiring Big River Steel, purchasing a 49.9 percent ownership interest for approximately $700 million in cash, with a call option to acquire the remaining interest within the next four years. Acquiring Big River, which operates the most advanced, state-of-the-art and sustainable mill in North America, will strengthen the Pittsburgh-headquartered company’s competitive positioning.
U.S. Steel has committed financing to execute the transaction, which is expected to close Oct. 31, 2019. The company intends to increase its existing $1.5 billion asset-backed lending facility to $2 billion and draw on the upsized asset-backed lending facility to fund the transaction.
The implied enterprise value of Big River, including the expected completion of its Phase II-A expansion, which is fully funded and already under construction, is approximately $2.325 billion.
Operating in northeast Arkansas, Big River’s technological leadership allows it to produce a wide product spectrum, including advanced automotive steels and electrical steels, and provide high-quality products and services to the automotive, energy, construction and agricultural industries.
Big River’s recently announced Phase II-A expansion is expected to double the mill’s hot-rolled steel production capacity to 3.3 million tons annually, establishing it as one of the largest EAF-based flat-rolled mills in North America.
“The investment in Big River, coupled with our announced investments at Mon Valley Works and Gary Works, would ultimately position U. S. Steel with three core market-leading, differentiated and technologically advanced assets that will enable us to compete with anyone, anywhere, for generations to come,” U.S. Steel President and CEO David B. Burritt said, in a statement. “Each of these locations would be able to focus on the products that each facility is best designed to produce. As an organization, we will be nimbler, more resilient and our teams will be more efficient.”
The transaction positions U. S. Steel to achieve as much as $1 billion in capital and operational cash improvements by 2022 through activities such as rescoping asset revitalization investments, reducing fixed costs and enhancing its ability to pursue opportunities to extract incremental value from excess iron ore pellets.
It also increases U.S. Steel’s profitability, predictability and cash flow generation through the business cycle, due to Big River’s low-cost position, highly variable cost structure and low sustaining capex requirements.
Barclays Capital is serving as financial advisor to U.S. Steel, and Milbank LLP is providing legal counsel. J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are serving as financial advisors to Big River, and Baker Hostetler is serving as legal counsel. Jones Day is serving as legal counsel to KM BRS, LLC and Debevoise & Plimpton LLP is serving as legal counsel to TPG Furnace.