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AK Steel has been entertaining sale talks with multiple parties, sources familiar with the situation told dealReporter. The company is interested in an all-cash transaction, and has informally been on the block for a couple of months, according to two sources with knowledge of discussions.
Having traded north of USD 60, and as high as 73 a share from April to June, AK Steel’s stock has seen a sell-off in July and is now floating around USD 50 a share. Last week, AK Steel reported record earnings, exceeding expectations. The company reported 2Q08 operating earnings of USD 1.29/share, up from 0.90/share in 1Q08, and 0.98/share in 2Q07.
AK Steel did not return repeated calls seeking comments.
The Ohio-based steelmaker has continuously been the target of takeover rumors, however has recently expressed a newfound interest in selling. “AK is looking for a cash buyer with deep pockets,” said a first source.
A second source said that he had been involved in sale talks with AK over April and May, and although the company is not running a formal sale process, “its bankers are teasing the crowd with a very unrealistic price tag.” ThyssenKrupp and Evraz have been taking a close look at AK, he said.
CSN and Severstal are also interested in the company, added a third person monitoring the situation. Severstal had almost come to an agreement to acquire AK Steel in 2007, however “just could not get there on price,” the first source said. At this time, the Russian steelmaker signed a standstill agreement prohibiting it from going hostile with any offer, in exchange for access to AK’s books, he added. Hedge funds own a large chunk of AK Steel, with Harbinger Capital partners sitting on a 13% stake, and York Capital with 13.14% according to the latest 10k filing.
ThyssenKrupp, Evraz and Severstal declined to comment.
Having recently enjoyed an all-time high stock price soaring into the low USD 70s, AK’s shareholders may expect any takeover offer to be at a significant premium to, or at these levels, suggested the first source.
“[Some believe] that the company needs to come down to a more realistic price expectation if it wants any kind of deal,” said the second source. However this is not preventing interested parties from looking closely at the asset. “Their auto exposure is heavy, so it’s tough at this price, but I think everyone is still having a good look,” said an industry banker.
The high price could not only deter some bidders from pursuing the company but also delay the process until AK Steel adjusts its expectations, some of these sources suggested.
Although rival bidders could very possibly emerge should the company strike a deal with any bidder at a reasonable price, it is unlikely to run an ‘auction’ with multiple buyers unless it felt strongly that one party might deliver a knockout bid, the first source speculated. “They don’t give a lot of information on their stainless or electrical [products], they’re very guarded and secretive,” he said. Any party wanting to take a closer look at AK’s business would probably also have to sign a standstill agreement like Severstal did last year, he added.
Although such an agreement would protect the company from hostile attempts, AK Steel’s two largest shareholders would likely turn down any offers that were not highly attractive, the first source suggested. “York and Harbinger are the gatekeepers for [CEO] Wainscott right now… as much as he might sell for 60 a share, these guys might keep him from doing it.”
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