(Recasts, adds analyst comments, details)
BANGALORE, Sept 24 (Reuters) - Metal Management Inc MM.N agreed to be acquired by Australia’s Sims Group Ltd (SGM.AX) for $1.6 billion in stock, creating the largest global scrap metal company as consolidation in the industry gathers pace.
“This (deal) is not terribly surprising since the scrap industry has been consolidating for sometime and that’s been in response to the steel industry’s own consolidation,” analyst Eric Glover of Canaccord Adams said by phone.
A sharp rise in iron ore prices and increased demand from rapidly growing economies such as China, and limited supply of scrap that is also used to make steel, have made ferrous scrap an attractive commodity, Canaccord Adams said in a note to clients.
Metal Management’s presence across the U.S. complements Sims’ export-focused North American business.
The transaction is valued at about $1.6 billion, Andrew Siegel, a spokesperson for Metal Management, said by phone.
Metal Management shareholders will get 2.05 Sims American Depositary Receipts for each Metal Management share held.
Sims Group’s offer is pitched at a premium of 18.2 percent to the scrap metal recycler’s closing share price Friday on the New York Stock Exchange.
The transaction has a mutual termination fee of $25 million and the company expects to close the deal in the first quarter of 2008.
The combined group, to be called Sims Metal Management, will be led by Metal Managements’ current Chief Executive Daniel Dienst and Finance Chief Robert Larry who will retain their positions.
Sims Metal Management will be the largest listed recycler with a market capitalization of about $5 billion.
Upon closing, Sims shareholders will own about 70 percent of the combined company.
Metal Management shares, which were halted Monday, had closed at $48.86 Friday on the New York Stock Exchange. The stock was up 29 percent so far this year. (Reporting by Esha Dey and Chakradhar Adusumilli in Bangalore)