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Strange Deal to Go Private: WSP Holdings Limited (ADR) (WH), United States Steel Corporation (X)

Competition

Price is the largest factor in competition according to management.  Key competitors for WSP Holdings Limited (ADR) (NYSE:WH) include United States Steel Corporation (NYSE:X) in the US,  Tenaris from Argentina, Vallourec (VK) & Mannesmann Tubes in Europe, TMK in Russia, Sumitomo (8053) and JFE (5411) in Japan.  US Steel manufactures various products such as flat rolled and tubular products.  Tenaris manufactures and sells steel pipes around the world.  Both of these competitors have sales the trounce WSP that help them achieve economies of scale.  US Steel has an operating margin of 2% and Tenaris has an operating margin of 21%.  This is compared to the -9% operating margin of WSP.  Both US Steel and Tenaris haven’t seen the same loss in sales in the last year as WSP has seen.

Agreement to take WSP Holdings Limited (ADR) (NYSE:WH) private

In the agreement, WSP OCTG Group, owned by HDS Investments and JM OCTG Group, will acquire the outstanding common shares for $0.32.  Each American Depositary Share represents ten common shares of WH resulting in a buyout of $3.20 per share, a significant premium to the price prior to the announcement – the ADR traded at $1.60 per share on Feb. 20. The merger agreement was approved by the company’s board of directors.  It is expected to close in the second quarter of 2013 and requires the approval of two-thirds of the shareholders.

Conclusion

The shares currently trade at $3.05, below the proposed take out price, but still close to double the price prior to the announcement of taking the company private. This indicates some doubt in a closing but shareholders of the ADR should probably take the opportunity to get out of firm with lots of headwinds despite improving industry fundamentals.

The article Strange Deal to Go Private originally appeared on Fool.com and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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