Strategic Acquisition: OmniSource Corporation - Steel Dynamics, Inc.
Strategic Acquisition: OmniSource Corporation - Steel Dynamics, Inc.
Strategic Acquisition: OmniSource Corporation - Steel Dynamics, Inc.
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>Strategic</strong> <strong>Acquisition</strong>:<br />
<strong>OmniSource</strong> <strong>Corporation</strong><br />
Investor Presentation<br />
October 2, 2007
Forward-Looking Statements<br />
This presentation contains predictive statements about future events, including statements related to<br />
conditions in the steel marketplace and the future growth of <strong>Steel</strong> <strong>Dynamics</strong>’ and <strong>OmniSource</strong>’s<br />
revenues and profitability.<br />
These statements are intended to be made as “forward-looking” within the safe harbor protections of<br />
the Private Securities Litigation Reform Act of 1995. Such predictive statements are not guarantees of<br />
future performance, and actual results could differ materially from our current expectations.<br />
We refer you to our detailed explanation of the many factors and risks that may cause such predictive<br />
statements to turn out differently, as set forth in the most recent <strong>Steel</strong> <strong>Dynamics</strong>’ Annual Report on<br />
Form 10-K and in other reports which we from time to time file with the Securities and Exchange<br />
Commission, available publicly on the SEC’s web site at www.sec.gov and on our Web site at<br />
www.steeldynamics.com.<br />
2<br />
October 2, 2007
Management Participants<br />
Keith Busse<br />
Chairman and CEO<br />
<strong>Steel</strong> <strong>Dynamics</strong>, <strong>Inc</strong>.<br />
Danny Rifkin<br />
President and CEO<br />
<strong>OmniSource</strong> <strong>Corporation</strong><br />
3<br />
October 2, 2007
Transaction Overview<br />
<strong>Steel</strong> <strong>Dynamics</strong> (“SDI”) acquires <strong>OmniSource</strong> for approximately $1 billion in a 50/50<br />
cash/stock transaction<br />
_<br />
_<br />
_<br />
_<br />
$425 million of cash<br />
9.3 million SDI shares valued at $425 million<br />
400,000 SDI shares valued at $18 million reflecting the shared benefits of a favorable<br />
tax structure with an estimated present value of $106 million to SDI<br />
Assumption of approx. $210 million of <strong>OmniSource</strong> net debt expected at closing<br />
Financed with cash on hand and debt<br />
<strong>OmniSource</strong> President and CEO, Danny Rifkin, will continue to lead <strong>OmniSource</strong> and will<br />
also re-join SDI’s Board of Directors<br />
_<br />
As an EVP of SDI, Danny Rifkin will lead all of the company’s ferrous and non-ferrous<br />
processing and brokerage activities<br />
Potential annual run-rate pretax synergies of $15 million<br />
<strong>Acquisition</strong> expected to be accretive to 2008 excluding synergies<br />
Closing expected early in fourth quarter 2007<br />
4<br />
October 2, 2007
<strong>Strategic</strong> Rationale<br />
Tremendous platform for future growth<br />
_ Scrap industry fundamentals are very strong and are expected to remain strong for<br />
the foreseeable future<br />
_ <strong>OmniSource</strong>’s size and acquisition track record provide SDI a strong platform to<br />
make further acquisitions within the highly fragmented North American scrap<br />
industry<br />
Unites pre-eminent steel producer with pre-eminent scrap processor<br />
Vertical integration – uniquely enables SDI to capture value on every step of the value<br />
chain and provides unencumbered access to scrap<br />
_ In conjunction with SDI’s Mesabi Nugget investment, helps insulate SDI from<br />
extreme scrap and iron ore pricing volatility<br />
Low risk transaction – <strong>OmniSource</strong> is the ideal partner for SDI<br />
_ Complementary geographic footprint – provides for significant potential<br />
transportation synergies<br />
_ Opportunity for significant working capital savings<br />
_ Long and rich history – <strong>OmniSource</strong> was instrumental in helping launch SDI and is<br />
one of SDI’s largest scrap suppliers<br />
5<br />
October 2, 2007
Ferrous Scrap Market Overview<br />
Highly fragmented industry with many family-owned businesses<br />
Over the last several years, scrap values have increased significantly, driven by:<br />
_<br />
_<br />
The rise in global steel production<br />
Consolidation among scrap processors<br />
_ Reduced availability of prime industrial scrap resources due to reduced domestic<br />
manufacturing activity and improved industrial and automotive efficiencies<br />
Although scrap prices will continue to be volatile, they are expected to remain strong for<br />
the foreseeable future<br />
_ Scrap is a semi-finite resource with limited availability<br />
_ The number of scrap vendors available to scrap buyers has been reduced<br />
_ Continued exports of scrap from the U.S. to overseas steel producers<br />
_ De-linking of finished steel prices and scrap prices<br />
As a result, scrap industry fundamentals are expected to remain strong<br />
6<br />
October 2, 2007
<strong>OmniSource</strong> Overview<br />
Founded in 1943 by Irving Rifkin and headquartered in Fort Wayne, Indiana<br />
One of the largest processors and distributors of scrap and secondary metals in North<br />
America<br />
Engages in scrap metal processing, transportation, marketing, brokerage, management<br />
and consulting in North America<br />
<strong>Strategic</strong> relationships with industrial scrap generators and consumers<br />
Relationships include automotive OEMs and suppliers, steel processors, steel mills,<br />
foundries, wire and cable producers, utilities and telephone networks<br />
Designed, installed and managed customized programs for industrial manufacturing<br />
companies as part of scrap management and consulting practice<br />
Employs 2,000 people in 42 facilities located in the eastern U.S. and Canada<br />
In fiscal 2006 (1) , processed 5.7 million tons of ferrous and 800 million lbs. of non-ferrous<br />
metals, generating sales of $2.3Bn and EBITDA of $159MM<br />
7<br />
(1) Based on <strong>OmniSource</strong> fiscal year 2006 ending September 30, 2006; pro forma for acquisitions completed in FY2006; includes joint venture<br />
income and excludes non-recurring items<br />
October 2, 2007
<strong>OmniSource</strong> Products and Services<br />
Ferrous Products – produces an array of ferrous<br />
scrap products for foundry and steel mill<br />
applications<br />
Non-Ferrous Products – produces an array of nonferrous<br />
scrap products (e.g., aluminum, brass,<br />
copper, stainless steel etc.) for use in foundry, mill,<br />
refining and smelting applications<br />
Superior Aluminum – produces specification<br />
aluminum alloys in the form of ingots, sows and<br />
molten metal<br />
Scrap Management – develops and manages<br />
custom-designed facilities for scrap handling,<br />
disposal and/or procurement for scrap generators<br />
and consumers<br />
Brokerage and Trading – includes ferrous and nonferrous<br />
scrap, scrap alternatives, secondary and<br />
primary metals<br />
Transportation – coordinates all freight and logistics<br />
by truck, rail or river barge<br />
Non-<br />
Ferrous<br />
2006 Sales By Scrap Type<br />
Stainless<br />
32%<br />
6%<br />
62%<br />
Ferrous<br />
8<br />
October 2, 2007
<strong>OmniSource</strong> <strong>Acquisition</strong>s and Joint Ventures: 1998 – Present<br />
<strong>OmniSource</strong> has an excellent track record of identifying, executing and<br />
integrating value-accretive acquisitions and joint ventures<br />
<strong>OmniSource</strong> represents a strong growth platform for SDI<br />
10/98<br />
<strong>Acquisition</strong> of<br />
Jackson Fibers<br />
1/98<br />
<strong>Acquisition</strong> of<br />
Jackson Iron &<br />
Metal<br />
3/99<br />
<strong>Acquisition</strong> of Midstates<br />
<strong>Steel</strong> Handling<br />
4/01<br />
<strong>Acquisition</strong> of Dobrow<br />
Industries<br />
6/04<br />
<strong>Acquisition</strong> of Admetco<br />
Acquired 50% interest in<br />
Carolinas Recycling Group<br />
4/03<br />
<strong>Acquisition</strong> of Abe<br />
Sposeep & Sons<br />
3/06<br />
<strong>Acquisition</strong> of K&F<br />
Industries + 1/3 MKO<br />
Interest<br />
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007<br />
2008 &<br />
Beyond<br />
3/98<br />
<strong>Acquisition</strong> of<br />
A. Edelstein<br />
1/99<br />
<strong>Acquisition</strong> of<br />
Industrial Scrap<br />
5/99<br />
<strong>Acquisition</strong> of Scrap<br />
Assets from Midwest<br />
Pipe & <strong>Steel</strong><br />
10/02<br />
<strong>Acquisition</strong> of Loef<br />
Metal Cos.<br />
3/04<br />
<strong>Acquisition</strong> of<br />
H. Hirschfield & Sons<br />
8/04<br />
<strong>Acquisition</strong> of L.<br />
Surath & Sons<br />
12/06<br />
<strong>Acquisition</strong> of<br />
Kokomo and Tipton +<br />
1/3 MKO Interest<br />
9<br />
October 2, 2007
Complementary <strong>Strategic</strong> Facility Locations<br />
<strong>OmniSource</strong>’s facility<br />
locations are highly<br />
complementary to SDI’s<br />
manufacturing facilities<br />
Toledo<br />
Provides significant potential<br />
for transportation synergies<br />
Key to symbols<br />
St. Louis<br />
Indianapolis<br />
<strong>OmniSource</strong> Facilities<br />
<strong>OmniSource</strong> Affiliate (1)<br />
Recycled South (2)<br />
SDI <strong>Steel</strong> Processing Facilities<br />
SDI <strong>Steel</strong> Mills<br />
SDI Scrap Facilities<br />
Atlanta<br />
Jacksonville<br />
1<br />
(1) Represents Cumberland Recycling Group facilities<br />
(2) Recycled South LLC (CRG/ASAP/<strong>OmniSource</strong> facilities<br />
October 2, 2007
SDI and <strong>OmniSource</strong> History<br />
SDI and <strong>OmniSource</strong> have a long and rich history<br />
_<br />
_<br />
_<br />
_<br />
_<br />
<strong>OmniSource</strong>’s Rifkin family was among the original investors and helped launch<br />
SDI in 1993<br />
<strong>OmniSource</strong> initially served as SDI’s exclusive scrap agent and has continued to<br />
be a supplier to SDI since 1993<br />
<strong>OmniSource</strong> is currently one of SDI’s largest scrap suppliers<br />
Leonard Rifkin, current <strong>OmniSource</strong> Chairman, was one of the original SDI<br />
Board members, serving as a Director from 1994 to 2002<br />
Danny Rifkin will rejoin SDI’s Board of Directors after previously serving as a<br />
Director from 2002 to 2003<br />
SDI and <strong>OmniSource</strong> have discussed a strategic combination for many years<br />
The historic relationship between SDI and <strong>OmniSource</strong> helps mitigate the risk of the<br />
transaction<br />
11<br />
October 2, 2007
Fiscal 2006 (1) Financial Summary<br />
($ and Tonnage in millions)<br />
Tons Shipped / Processed<br />
<strong>Steel</strong> <strong>Dynamics</strong><br />
4.7<br />
<strong>OmniSource</strong><br />
5.3 (2)<br />
Revenue<br />
$3,239<br />
$2,255<br />
EBITDA (3) $777<br />
$159<br />
EBIT (3) $662<br />
$134<br />
12<br />
(1) <strong>Steel</strong> <strong>Dynamics</strong> fiscal year ending December 31, 2006. <strong>OmniSource</strong> fiscal year ending September 30, 2006.<br />
(2) <strong>OmniSource</strong> tonnage represents ferrous processed; in fiscal 2006 <strong>OmniSource</strong> also processed 774 million lbs. of non-ferrous metals<br />
(3) Pro forma for acquisitions completed in FY2006; includes joint venture income and excludes non-recurring items<br />
October 2, 2007
Pro Forma <strong>Steel</strong> <strong>Dynamics</strong><br />
SDI’s s History of <strong>Acquisition</strong>s<br />
Pro Forma 2006 Revenue Mix<br />
<strong>Steel</strong> Fabrication<br />
5%<br />
Resources 39%<br />
56%<br />
<strong>Steel</strong> Production<br />
Pro Forma 2006 Shipments Mix<br />
<strong>Steel</strong> Fabrication<br />
2%<br />
• October 2007 – Announced<br />
<strong>OmniSource</strong> acquisition<br />
• July 2007 – Acquired The Techs<br />
• April 2007 – Purchased two Tennessee<br />
scrap yards<br />
• April 2006 – Acquired Roanoke Electric<br />
<strong>Steel</strong> <strong>Corporation</strong><br />
• March 2003 – Acquired Jeffersonville,<br />
Indiana, galvanizing plant<br />
• September 2002 – Acquired Pittsboro,<br />
Indiana, SBQ mill<br />
Resources<br />
43%<br />
55%<br />
<strong>Steel</strong> Production<br />
13<br />
October 2, 2007
Transaction Summary<br />
Provides strong platform for future growth in both steel production and scrap<br />
processing<br />
_<br />
_<br />
SDI and <strong>OmniSource</strong> expect to continue to grow their respective relationships<br />
with other scrap suppliers and steel mills<br />
Continued opportunity for growth both on greenfield and M&A basis<br />
Enables SDI to capture value on every step of the value chain<br />
In conjunction with SDI’s recent Mesabi Nugget investment, insulates SDI from<br />
extreme scrap and iron ore pricing volatility<br />
Low risk transaction – ideal partners<br />
_<br />
_<br />
Complementary geographic footprints<br />
Long and rich history<br />
Financially attractive acquisition<br />
_<br />
_<br />
_<br />
Accretive to 2008E earnings excluding synergies<br />
Potential annual run-rate pretax synergies of $15MM<br />
Maintains financial flexibility post-transaction<br />
14<br />
October 2, 2007
Fiscal 2006 EBITDA Reconciliation (1)<br />
($ in millions)<br />
<strong>Steel</strong> <strong>Dynamics</strong> <strong>OmniSource</strong><br />
<strong>Inc</strong>ome Before <strong>Inc</strong>ome Taxes<br />
$631.6<br />
$116.3<br />
Interest Expense, Net<br />
31.0<br />
11.1<br />
EBIT (2) 662.5<br />
134.1<br />
Adjustments<br />
--<br />
6.7<br />
(1)<br />
Depreciation & Amortization<br />
114.8<br />
25.0<br />
EBITDA (2) 777.3<br />
159.1<br />
Adjustments:<br />
15<br />
Gain on Sale of Assets<br />
Excess Compensation and Severance<br />
Unrealized Gain on Hedging Activities<br />
Reversal of Allowances<br />
Expensed Capital and Related Party Lease Expense<br />
Other Expenses<br />
Annualized <strong>Acquisition</strong>s, Joint Ventures and Divestitures<br />
Total Adjustments<br />
(1) <strong>Steel</strong> <strong>Dynamics</strong>’ fiscal year end is December 31, 2006; <strong>OmniSource</strong>’s fiscal year end is September 30, 2006<br />
(2) Numbers may not add up due to rounding<br />
(11.3)<br />
5.9<br />
(7.1)<br />
1.2<br />
5.5<br />
3.9<br />
8.6<br />
6.7<br />
October 2, 2007