United States Steel Corp. announced Tuesday it has taken a first step toward acquiring Big River Steel through the purchase of a 49.9% ownership stake for $700 million in cash, with a call option to acquire the remaining 50.1% over the next four years.
U. S. Steel also said it has already committed financing to execute the transaction. The implied enterprise value of Big River Steel, including the expected completion of its Phase II-A expansion, which is fully-funded and already under construction, is approximately $2.325 billion.
David Burritt, U.S. Steel CEO, said the new partnership with Big River Steel is designed to accelerate the Pittsburgh-based steel giant’s strategy to incorporate all of its capabilities of integrated and mini mill steel production.
“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,” Burritt said. “We have been investing in leading technology and advanced manufacturing so that we can assemble a portfolio of competitive assets with distinct advantages to serve strategic markets to better position.”
The blockbuster deal comes nearly one year after Big River Steel fielded potential buyout offers and “strategic alternatives” as an ongoing concern, including setting up a virtual data room or scheduling site visits that allowed serious bidders to conduct due diligence on the finances and operations of the company’s sprawling 1,300-acre site in steel-rich Mississippi County.
At the time, key bidders that showed an interest in making potential offers for the company’s new Osceola mill were Charlotte, N.C.-based rival Nucor Corp. and Fort Wayne, Ind.-based Steel Dynamics Inc. Other top bidders included U.S. Steel and a consortium of domestic and international steel producers and top Wall Street investment firms.
Big River Steel first broke aground on its $1.2 billion facility in September 2014. The company received $125 million in general obligation bonds under the state’s Amendment 82 provision that allows for so-called “super projects.”
It also received a $50 million loan, that was paid back 17 years early, and another $50 million for site preparation, according to the Arkansas Economic Development Commission. Big River Steel received $20 million for subsurface stabilization, and another $5 million for bond insurance. The company also received a package of tax credits and incentives to build its plant in the state.
When it was first announced, the steel mill was the largest industrial project in Arkansas history. Under its incentive deal with the AEDC, Big River Steel was obligated to employ 525 workers making on average between $75,000 and $100,000 per year.
In late June 2018, Big River Steel made the surprise announcement that it planned to double its hot-rolled steel production capacity to 3.3 million tons annually. That $1.2 billion expansion project would nearly double the company’s employee payroll to well over 1,000 workers. However, company officials have not explained how the strategic review would impact those expansion plans.
In April 2018, Big River Steel officials also signed an option with economic development officials in Brownsville, Texas, to build a $1.6 billion steel mill in south Texas, which will be modeled after the Arkansas plant. More than a year ago, the Big River Steel partnership behind the Osceola mill closed on a $1.225 billion debt-financing package consisting of a $600 million senior note due by 2025, a six-year $400 million secured term loan, and a five-year asset-back lending arrangement.
Those proceeds, company officials have said, were used to finance the company’s outstanding debt as interest rates began to rise, and for general corporate and working capital purposes. One of the stakeholders in the limited liability partnership that owns and operates the Northeast Arkansas mill is the Arkansas Teacher Retirement System (ATRS).
Big River Steel CEO Dave Stickler, who also has a minority stake in the Northeast Arkansas venture, said U. S. Steel’s decision to partner with the company “is a decisive vote of confidence in our company, our vision and our people.”
“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,” said Stickler. “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. As the newest steel production facility in North America, I could not be more proud to be partnering with a company started by Andrew Carnegie more than 118 years ago,” Stickler added.
Dan Murray, of KM BRS LLC, a subsidiary of Koch Minerals LLC, and current chairman of Big River Steel said, “We appreciate the opportunity to be a part of this exciting transaction that combines Big River’s state-of-the art, LEED-certified steel-making technology and U. S. Steel’s experience and demonstrated know-how.”
Upon the completion of the transaction, KM BRS, LLC and TPG Furnace LP will remain preferred equity holders of Big River Steel, officials said.