Big Steel Merger Coming Up: Alcoa Inc (AA), Reliance Steel & Aluminum (RS), Metals USA Holdings Corp (MUSA)

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Over the past few weeks, the long-anticipated merger between Reliance Steel & Aluminum (NYSE:RS) and Metals USA Holdings Corp (NYSE:MUSA) has taken several important steps forward. First announced in early February, the merger values Metals USA Holdings Corp (NYSE:MUSA) at around $1.2 billion and offers considerable value for the company’s shareholders and employees. From Reliance Steel & Aluminum (NYSE:RS)’s standpoint, it also has the potential to create exciting synergies that may ultimately reduce its operational costs and allow it to increase production in the United States and elsewhere.

Is It The Time to Buy Alcoa (AA)?

As of the second week of March, the “shopping” period during which Metals USA Holdings Corp (NYSE:MUSA) was permitted to solicit alternative takeover bids has passed into oblivion. With the customary regulatory investigation of the deal coming to an early close, there appears to be little standing in the way of the expedient completion of this merger. If all goes according to plan, the deal could be finalized as early as the end of the second quarter of 2013.

About Reliance Steel & Aluminum and Metals USA

Los Angeles-based Reliance Steel & Aluminum is a metal processing company that makes, stores and distributes a staggering array of metal-based products. The company’s most popular materials include various aluminum derivatives, alloys, various steel blends, copper, brass, titanium and specialty metals. It also engages in the production and distribution of simple finished products like pipes, tubes, bolts and bars as well as high-quality tools that it makes “to order” for oil drillers, communications firms, manufacturers and other specialized outfits. Reliance Steel operates in North America, Europe, the Middle East and East Asia. In 2012, the company earned $403.5 million on $8.4 billion in gross revenues.

Fort Lauderdale, Florida-based Metals USA is a metal processing firm that focuses on producing basic mechanical and structural components using steel, aluminum, and other pure metals and alloys. The company’s products include bars, pipes, bolts, plates, angles, tubes and other items. It also engages in a variety of metalworking services, including shearing, splitting, bending, burning and alloy production. Metals USA deals with clients in the aerospace and construction industries as well as outdoor furniture manufacturers and industrial machinery assemblers. The company earned $52.7 million on gross 2012 revenues of about $2 billion.

Competitors

Since Reliance Steel & Aluminum (NYSE:RS) and Metals USA Holdings Corp (NYSE:MUSA) operate in many of the same industries, it is only natural to assume that they have some common competitors. In particular, they face stiff pushback from larger firms like Alcoa Inc (NYSE:AA), as well as smaller, more specialized outfits like Worthington Industries, Inc. (NYSE:WOR).

Of course, Alcoa Inc (NYSE:AA) is far larger than either Reliance Steel & Aluminum (NYSE:RS) or Metals USA. While it produces virtually every basic and finished aluminum product in existence, it does not compete directly with either company’s steel-processing operations. As such, Alcoa Inc (NYSE:AA), Reliance and Metals USA have coexisted peacefully for many years. At the same time, both companies are cognizant of the moves that Alcoa makes due to its ability to influence aluminum prices.  Relative to Reliance and Metals USA Holdings Corp (NYSE:MUSA), Alcoa Inc (NYSE:AA) has a much lover ROA of 1%, versus about 7% for the others.

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