Smorgon Steel, OneSteel and BlueScope Finalise Merger Agreement

Smorgon Steel Group Ltd, OneSteel Limited and BlueScope Steel Limited announced today that the due diligence investigation and contractual negotiations referred to in their joint announcement of 20 March 2007 have been successfully concluded and formal agreements have been executed.

The agreements are consistent with what was announced to the market on 20 March 2007, the key aspects of which are as follows:

  • Smorgon Steel will propose a scheme of arrangement (Scheme) with its shareholders by which OneSteel will acquire all Smorgon Steel shares (other than those held by BlueScope Steel) in return for OneSteel shares and, possibly, some cash, on terms substantially similar to the scheme of arrangement announced on 26 June 2006;
  • BlueScope Steel will undertake to vote in favour of the Scheme;
  • before the Scheme becomes effective, OneSteel will acquire BlueScope Steel's 19.98% stake in Smorgon Steel for a cash price equivalent to the value payable to Smorgon Steel shareholders under the Scheme;
  • BlueScope Steel will acquire Smorgon Steel’s metal distribution business (“Smorgon Steel Distribution”) for an enterprise value of $700 million; and
  • BlueScope Steel will assume the position of acquirer and resupplier of scrap for OneSteel’s Sydney Steel Mill, BlueScope Steel and others.

Under the Scheme, Smorgon Steel shareholders will receive 9 shares in OneSteel for every 22 shares they hold in Smorgon Steel (equivalent to a ratio of 0.4091 OneSteel shares per Smorgon Steel share). In addition, Smorgon Steel shareholders will receive a special dividend of 6.23 cents per share, fully-franked, which will be paid irrespective of whether the Scheme is implemented. In the event that the volume-weighted average OneSteel share price (OneSteel VWAP) is below $4.15 (but above $3.75) over the ten days immediately following the Scheme becoming effective, shareholders will also be entitled to an additional cash component so that the economic value of the transaction to Smorgon Steel shareholders is $1.76 per Smorgon Steel share.

OneSteel shares have not traded below $4.15 since 30 October 2006 and have not traded below $3.75 since 26 July 2006.

On 4 April 2007, OneSteel’s closing price was $5.27. If the OneSteel VWAP was equal to $5.27, the value of the Scheme consideration would be $2.16. Smorgon Steel shareholders would therefore receive the Scheme consideration plus the special dividend of 6.23 cents per share, fully-franked.

If the Scheme is implemented, Smorgon Steel shareholders (excluding BlueScope Steel) will own approximately 34% of OneSteel.

The Scheme is unanimously recommended by the directors of Smorgon Steel, each of whom intends to vote all shares they personally hold in favour of the Scheme. Two Smorgon Steel directors, Graham Smorgon and Laurence Cox, will join the OneSteel Board of Directors if the Scheme becomes effective.

The proposed transactions are interdependent, cross-conditional and subject to a number of conditions. Both the sale of Smorgon Steel Distribution to BlueScope Steel and the merger of OneSteel and Smorgon Steel via the Scheme are subject to approval by the Australian Competition and Consumer Commission (“ACCC”). Submissions will be lodged with the ACCC as soon as practicable.

Other relevant conditions applying to the merger and the sale of Smorgon Steel Distribution include:

  • Receipt of satisfactory tax rulings from the Australian Taxation Office;
  • Smorgon Steel shareholder approval, Court approval and other regulatory consents; and
  • the Smorgon Steel Scheme of Arrangement becoming effective.

A summary of some key terms of the significant transaction documents are contained in Attachment A.

Smorgon Steel intends to put the Scheme to its shareholders as soon as practicable after receipt of necessary approvals from the ACCC.

Further announcements regarding the timetable for completion of these transactions will be made as soon as possible.


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