Russel Metals Inc and Marubeni-Itochu Tubulars America Inc (MITI) have agreed to merge their Canadian OCTG/line pipe businesses. Russel Metals will retain a 50% stake in the combined entity.
Russel Metals (RUSMF) President and CEO, John Reid said, “Over the past nine months, we have been strategically focused on both rationalizing the operations and reducing the capital deployed in our OCTG/line pipe businesses.”
Reid added, “This transaction provides an opportunity to substantially repatriate capital for deployment in other value-enhancing opportunities, but also retain an ongoing interest and participate in the future success of the combined business.” (See Russel Metals stock analysis on TipRanks)
At present, Russel Metals and MITI operate their Canadian OCTG/line pipe business through their respective subsidiaries, Triumph Tubular and Supply and Hallmark Tubulars.
The combined business will function under a new company called TriMark Tubulars and is expected to create greater economies of scale and broaden the product mix to efficiently serve customers.
Along with retaining the 50% stake in TriMark, Russel Metals will also receive $79 million in cash and preferred shares of $32 million face value with a 7% annualized dividend rate. In addition, Russel Metals will retain Triumph’s accounts receivables of about $59 million.
Triumph reported revenue of $165 million and an operating loss of $3 million in fiscal 2020. Russel Metals expects the transaction to close in 2Q or 3Q, 2021.
On March 30, Scotiabank analyst Michael Doumet lowered the stock’s rating to Hold from Buy with a $21.14 price target. On an earnings call following the release the company’s fourth quarter results, Doumet was interested in understanding what drove the decrease in operating income from 3Q to 4Q. Russel Metals’ Executive VP and CFO Martin Juravsky cited ongoing macro challenges within the US sector as being partially responsible for the pullback.
Consensus on the Street for Russel Metals is a Moderate Buy based on 3 Buys and 3 Holds alongside an average analyst price target of $21.60. This implies that shares are almost fully priced at current levels with approximately 1% upside potential over the next 12 months. Shares have gained about 101.6% over the past year.
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