BlueScope Steel, Australia's largest steelmaker and owner of the New Zealand Steel mill, has agreed to buy assets of Fletcher Building's Pacific Steel in a $120 million deal that will lead to the closure of Fletcher's steel mill at Otahuhu at the end of 2015.
The transaction will leave BlueScope as the nation's only steelmaker and requires approval from the Commerce Commission. The companies are aiming to complete the transaction in mid-2014.
Melbourne-based BlueScope will pay $60 million for Pacific Steel's long-products rolling and marketing operations and pay about $60 million for the target's working capital, according to a statement from Auckland-based Fletcher, which expects to record a significant expense item of up to $19 million.
Bluescope will pay half the $60 million price of the assets upfront and the remainder once it has commissioned a new billet caster, expected to be by the end of calendar 2015.
The sale includes Pacific Steel's rolling mill and wire drawing facilities in Otahuhu together with its Fijian rolling mill, Fletcher said in an announcement to the NZX this morning.
BlueScope will buy the Pacific Steel business and construct a new billet caster at the Glenbrook site south of Auckland which is operated by BlueScope's wholly owned subsidiary New Zealand Steel.
Fletcher will retain an economic interest in the Pacific Steel business through profit sharing arrangements until the new billet caster has been completed and billet production has been transferred to NZ Steel's Glenbrook steel mill, it said.
Mark Adamson, chief executive said having a local operator buy the business was the best outcome to help ensure that steel manufacturing in New Zealand remained globally competitive.
"This is a home-grown solution that secures a sustainable future for the New Zealand steel industry," he said.
Most of the employees in Pacific Steel's rolling mill and wire drawing facilities will be offered employment with BlueScope subsidiaries on terms and conditions that are similar to their current arrangements, Fletcher said.
Staff who are not offered employment will remain employees of Fletcher Building to operate the steel mill at Otahuhu until it is decommissioned, following which they will be given the opportunity to re-train and move to other roles in the Fletcher Group.
The transaction does not affect the ownership of Fletcher Building's steel distribution business, Fletcher Easysteel, or its steel reinforcing business, Fletcher Reinforcing.