• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

U.S. Steel to Buy Lone Star

Posted on: Thursday, 29 March 2007, 12:00 CDT

By DANIEL LOVERING

PITTSBURGH - United States Steel Corp. plans to buy Lone Star Technologies Inc., a maker of welded pipe used in oil fields, in a $2.1 billion cash deal that will make it North America's largest producer of tubular steel.

The Pittsburgh-based company said Thursday the transaction will combine its largely seamless tubular business with Lone Star's welded tubular operation, broadening its line of energy sector products.

U.S. Steel will be able to produce about 2.8 million tons of tubular steel in North America annually after the transaction is completed, the company said. The deal is expected to close in the second or third quarter of 2007.

John P. Surma, U.S. Steel's chairman and chief executive, said the transaction represents "a compelling strategic opportunity" for the company that significantly expands its tubular product offerings, production capacity and geographic footprint.

"U.S. Steel will be better positioned to serve the international oil and natural gas industry as the provider of choice for tubular products," he said in a statement.

Analysts said the deal was not entirely unexpected.

"I think people have been waiting for them to make an acquisition," said Sam Halpert, an industry analyst with Van Eck Global in New York. "It's not like they haven't grown production."

U.S. Steel does not appear to have paid too much for the Dallas-based Lone Star, and the amount was toward the lower end of the price range for recent acquisitions in the sector, he said.

Under the terms of the deal, U.S. Steel will pay $67.50 per Lone Star share - a total of about $2.1 billion and a roughly 39 percent premium over Lone Star's closing share price of $48.45 on Tuesday on the New York Stock Exchange.

Charles Bradford of Bradford Research/Soleil Securities in New York said he wondered what took U.S. Steel so long to make such an acquisition, and that he had expected Lone Star would be bought amid ongoing industry consolidation.

"It makes sense for U.S. Steel" to want a company that makes welded pipes to complement its seamless pipe business, he said.

Shares of Lone Star climbed $17.46, or 36.8 percent, to $65.91 in afternoon trading on the New York Stock Exchange after rising to a 52-week high of $66.50. U.S. Steel rose $2.34 to $100.04 on the NYSE after also setting a new 52-week high of $101.59.

U.S. Steel expects the purchase to boost per-share profit this year, excluding certain accounting adjustments related to inventory. The company plans to fund the transaction with cash on hand and credit.

The deal is subject to Lone Star shareholder and regulatory approvals.

---

On the Net:

U.S. Steel Corp.: http://www.ussteel.com

Lone Star Technologies Inc.: http://www.lonestartech.com

Source: Associated Press/AP Online

More News in this Category