KEY POINTS:
As the New Zealand sharemarket surged, Steel & Tube shares lost more than a fifth of their value yesterday after a massive sell-off following OneSteel's withdrawal of its takeover bid for the company.
The stock dived 88c, or 24.4 per cent, shortly after the market opened as investors reacted to the late Friday announcement that OneSteel was scuttling its takeover bid, citing increased market volatility and Steel & Tube's uncertain outlook because of its exposure to the New Zealand economy.
Australia's second-largest steelmaker, which already holds a 50.27 per cent interest in Steel & Tube, was offering $4 for every share in the company it does not own, valuing the deal at about $175 million.
Steel & Tube ended the day at $2.82, down 78c or 21.67 per cent.
The NZX-50 rose yesterday in anticipation of a big interest rate cut by the Reserve Bank this week. The index closed up 81.15 points, or 2.89 per cent, at 2889.92.
More than 642,000 Steel & Tube shares changed hands yesterday - representing more than 10 per cent of its total share transactions this year.
Its directors took the unusual step of advising the market that its first-quarter tax-paid profit showed an estimated $8.1 million increase from last year.
The company said the momentum of earnings would continue for the next month or so, but there was considerable uncertainty about the second half of the year.
Market commentator Arthur Lim said Australia's OneSteel might have underestimated the effect of the slowdown.
Its intention to launch a bid, which was announced last month, was seen by some in the market as opportunistic.
Lim said the sudden change of heart might have been prompted by developments in the steel market.
Rio Tinto said last week that Chinese demand for steel-making raw materials had slowed, while Mount Gibson Iron, Australia's fifth largest iron ore producer, said several of its customers had requested delays to shipments.
The fall-off in demand from China - a big driver of prices - has also seen spot prices for iron ore correct steeply.
All this, said Lim, pointed to hard times for the steel industry in the near future.
But he said OneSteel might still launch a new bid, if it believed it could take over the remaining shares "without too much aggravation and ill-will".
Mark Lister, head of research at ABN Amro Craigs, said OneSteel was well within its rights to pull its offer before shareholder documents were issued.
But he said a consolidation of companies driven by large industry players with strong balance sheets was still likely.
"There certainly are a host of opportunities to do some quite astute acquisitions."
