Steel manufacturing giant BlueScope is free to proceed with its $23.1 million acquisition of rival Arrium’s OneSteel sheet and coil business after securing regulatory approval for the deal following an undertaking to offload assets in Western Australia.
In a statement released on Thursday, the Australian Competition and Consumer Commission (ACCC) said it will not oppose the deal, which will see BlueScope – the only domestic manufacturer of the majority of flat steel products supplied to sheet and coil distributors – acquire OneSteel’s sheet and coil distribution sites in Sydney, Brisbane, Adelaide and Perth.
The approval is conditional upon an enforceable undertaking for BlueScope to sell its Perth sheet and coil distribution assets to Melbourne based distributor Selection Steel, which operates across all states and distributes limited volumes of product in Western Australia through a stocking centre it owns in that state.
ACCC Chairman Rod Sims said in absence of the divesture, the regulator had been concerned the purchase would remove BlueScope’s only significant competitor in Western Australia and would have led to higher prices, less favourable terms of supply and a reduced range in that state.
But he said the proposed divesture would enable Selection Steel to bulk up and become a realistic competitor in the Western Australian market.
”The divestiture of BlueScope’s sheet and coil processing assets to Selection Steel should enable Selection Steel to expand its operations in Western Australia and compete with BlueScope, particularly in the processing of sheet and coil products” Sims said.
“The ACCC is therefore satisfied that the proposed acquisition is unlikely to substantially lessen competition in sheet and coil distribution in Western Australia.”
When announcing the deal last October, BlueScope Chief Executive of Australia and New Zealand Mark Vassella said the assets were close to BlueScope’s core domestic operations and would therefore help to boost operational efficiency.
Following integration at an estimated cost of $7 million, the assets are expected to generate earnings in excess of BlueScope’s capital hurdle and be EPS (earnings per share) accretive in the 2014/15 financial year.
For BlueScope, approval of the acquisition follows completion of the $87.5 million purchase of the Fielders and Orrcon businesses from Hills Ltd on February 28 as well as the announcement of a $60 million deal to acquire the downstream long-products and marketing operations of Fletcher Building’s Pacific Steel Group (PSG) in Auckland announced on February 17.