Brazil’s biggest maker of steel products for the auto and construction industries, Gerdau SA, plans to sell as much as 4.2 billion Real (2.5 billion USD) of stock, boosting speculation that it has plans to buy a stake in a Brazilian rival, most probably Usiminas.
The company aims to raise 3.8 billion Real to 4.2 billion Real in a primary offering of common and preferred shares in Brazil and abroad, Gerdau said Monday in a regulatory filing. Metalurgica Gerdau SA, which controls Porto Alegre, Brazil-based Gerdau, and Gerdau BG Participacoes SA also plan to sell existing preferred shares in a secondary offering.
Investors are speculating Gerdau may buy part of Usinas Siderurgicas de Minas Gerais SA, Bank of America Corp. and JPMorgan Chase & Co. said in e-mails to clients on March 14. The Monday announcement may rekindle bets on a stake acquisition.
Gerdau said in the statement it will use proceeds from the sale to fund investments. The company’s controlling shareholders will use the funds from the secondary offering to “exercise their priority rights” in the primary sale, without specifying which class of stock will be acquired.
A stake in Usiminas would help Gerdau expand into the flat- steel business for the car industry, said Luiz Augusto Pacheco, an analyst at Omar Camargo Corretora in Curitiba, Brazil. Gerdau makes so-called long-steel products that are mainly used in the construction industry, he said.
Usiminas makes more flat steel for refrigerators and cars and they would complement each other well, according to analysts.
Nippon Steel Corp. said Feb. 18 it will retain control of Usiminas together with its local partners, following speculation that Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, may challenge the group. Nippon, Votorantim Participacoes SA and Camargo Correa SA together own 53.7% of Usiminas.
CSN said in January it held about 5% of each class of Usiminas’s stock and may further increase its stake to a level that could alter the competitor’s management or control structure.
Gerdau and Usiminas reported a tumble in fourth-quarter profits on rising raw materials costs, a strong currency, rising inventory and cheap steel imports from China.