The Deal: Sumitomo Pays $1.2 Billion for Edgen Group

NEW YORK ( TheStreet) - Japanese trading giant Sumitomo Corp. and its unit Sumitomo Corp. of America Inc. said Tuesday, Oct. 1, they agreed to buy steel pipe and valve distributor Edgen Group Inc. for $1.2 billion, picking up a company whose stock has been lagging since its initial public offering last year.

Sumitomo is offering $12 per share in cash, or about $520 million, for Edgen, a 58% premium over its closing price Monday of $7.60. Sumitomo expects to close the deal by the end of the year if it clears regulators. The breakup fee is $20 million.

While the announcement of the deal listed only the per share price, industry sources confirmed that, with debt, the value reached $1.2 billion.

At one time controlled by a group of investors led by Jefferies Capital Partners Inc., Edgen went public in April of last year at $11 per share, below its expected range of $14 to $16. Its shares dropped 13.6% on their first day of trading and have languished mostly below $9 per share ever since.

Its earnings also have been soft, with the last three quarters coming in below analyst expectations. Analysts also have thought its balance sheet has been weak, with around $680 million in debt.

" The key for stock to work is Ebitda guidance being achievable and free cash generation/balance sheet improvement," analysts at Tudor, Pickering, Holt & Co. wrote in a report this past March.

Kazuhiro Takeuchi, president and CEO of Sumitomo Corp. of America and Sumitomo Corp.'s general manager for the Americas, said in a statement the investment represents further expansion of Sumitomo's distribution presence across the upstream, midstream and downstream oil and gas markets and related segments and will complement its integrated supply solutions to the energy market.

"With the acquisition of Edgen Group, we gain a global distribution platform, including experienced staff, facilities and an expanded specialized steel product offering that will allow us to continue our growth and support the development of global energy infrastructure," he said. "As a leader in the supply of steel products, we continue to build a robust value chain from manufacturing through distribution and related services to support our customer's requirements."

Edgen CEO and president Dan O'Leary, who will continue to lead Edgen's strategic growth initiatives, said the opportunity to align with Sumitomo will benefit both businesses, including Edgen's Edgen Murray and Bourland & Leverich commercial brands that can be sold to customers worldwide.

"Our focus on highly engineered and mission critical steel products and our extensive industry knowledge and expertise in increasingly complex applications used in oil and gas drilling, extraction, production and processing complement Sumitomo's existing business," he said.

Besides steel pipe and valves, Baton Rouge, La.-based Edgen distributes quenched and tempered and high yield plate and related components such as fittings, flanges and connectors. It had $2.059 billion in sales last year with 660 employees and operations in over 35 locations in 18 countries.

Edgen Murray distributes specialized steel products used in drilling and production in offshore environments, gathering, processing, fractionation, transportation and storage of oil and natural gas and refining and petrochemical applications.

Bourland & Leverich is a U.S. oil country tubular goods distributor to conventional and unconventional oil and natural gas exploration companies, including the development of the shale industry. It has been in business since 1935.

Tudor, Pickering, Holt & Co.'s David Cunningham, Lance Gilliland and and B.J. Walker and Norton Rose Fulbright LLP's P. Kevin Trautner, Martin Doublesin, Gabe Jones and Kasyn Stevenson are advising Sumitomo. Citigroup Global Markets Inc.'s Steve Trauber, Serge Tismen and Francis Tucci and Dechert LLP's Carmen Romano, Eric Siegel, Anthony Lagreca and Allyson Levy are assisting Edgen. --

-- Written by Claire Poole in Houston with assistance from David Marcus in New York