United States Steel Corp. of Pittsburgh on Tuesday announced a $700 million stake in Big River Steel of Osceola, a move that will pave the way for the company's full ownership within the next four years.
Under the agreement, U.S. Steel formed a joint venture partnership agreement with Big River Steel's owners and will take a 49.9% ownership interest. U.S. Steel has a call option to buy the remaining 50.1% within the next four years, and executives said they "fully intend" to acquire it.
"Our new partnership with Big River is designed to accelerate our strategy to offer our customers the 'best of both' by bringing together the capabilities of integrated and mini mill steel production," U.S. Steel President and CEO David B. Burritt said in a news release.
"Big River operates the most advanced, state-of-the-art and sustainable mill in North America, and our investment would ultimately strengthen our competitive positioning in highly strategic steel-end markets, creating an unmatched value proposition for our stakeholders," he said.
The deal puts an "implied enterprise value" of Big River Steel, including the completion of its most recent expansion, at about $2.3 billion — a figure U.S. Steel CFO Kevin Bradley called an "attractive multiple compared to where other mini mills are trading today."
"U.S. Steel's decision to partner with us through this investment in Big River is a decisive vote of confidence in our company, our vision and our people," Big River CEO Dave Stickler said. "After just over two years of operations, we have built a unique platform that features the most advanced technology in our industry, and the very finest steel technicians in the business.
"We have always called ourselves a 'technology company that just happens to make steel.' In U.S. Steel, we have a likeminded technology-focused partner with an enduring tradition of excellence and a commitment to innovation. We are very excited about the possibility for what we can do together."
Publicly traded U.S. Steel (NYSE: X) will finance the deal, expected to close on Oct. 31, through its existing $1.5 billion asset-backed lending facility, which will increase to $2 billion.
U.S. Steel said its call option will allow it to buy the remaining 50.1% of the company within four years at "an agreed-upon price formula" based on the plant hitting certain metrics involving free cash flow, product development, safety and the completion of Big River's manufacturing line expansion.
'One of a Kind'
On a conference call with analysts, Burritt said the call option will give U.S. Steel time to see how the two companies' cultures mesh and to continue to judge Big River Steel's financial performance. But he added that U.S. Steel would like to purchase the rest of the company as soon as it can.
"Our bias is for action, our bias is for speed …," he said.
U.S. Steel's deal comes nearly a year after Big River Steel said it would remain independent amid rumors of a buyout. Reports last summer indicated that Nucor, which also operates in northeast Arkansas, was among the suitors.
In November 2018, Stickler told metal industry news website Fastmarkets AMM that Big River would remain independent and focus on its expansion, as well as plans to build a second flat-rolled mini-mill in the southern U.S. But he added that the company might consider joint ventures with other firms to make high-strength, automotive-grade steel.
U.S. Steel executives declined to provide details about Big River Steel's financial performance, but said the mill's 2018 results give them "great confidence" in the future finance performance of the business. They cited Big River's "record-setting startup," production, profitability and management team.
"This mill is truly one of a kind," Burritt said.
Executives said the deal will achieve up to $1 billion in cash improvement across U.S. Steel's footprint. They said the mill fits well with the company's strategy and will help U.S. Steel serve the southern U.S. and Mexico while expanding its presence in other markets.
"When this is complete, we will have three market-leading, differentiated and technologically advanced North American flat-rolled assets that will be able to compete with anyone, anywhere," Burritt said.
At $1.3 billion, the Big River Steel plant was a major economic development project assisted by the AEDC and the state Legislature, which in 2013 approved a multimillion-dollar package of incentives for the plant, including a $125 million bond issue under Amendment 82 of the Arkansas Constitution — the first time the "superproject" legislation was implemented.
In 2014, Arkansas Teacher Retirement System trustees authorized investing up to $125 million in Big River Steel. Koch Minerals, a subsidiary of Koch Industries of Wichita, Kansas, was an early — and major — investor in Big River Steel.
Construction on Big River Steel began in September 2014, and the company processed its first batch of steel in 2016. It aims to produce 1.6 million tons of niche and specialty steel for sale in North America.
The plant is located in Mississippi County, which is among the largest steel-producing counties in the country. Nucor has a three-decade history there, operating four facilities and employing nearly 1,700 workers.