BlueScope rejects recent SGH, SDI bid and notes terms for additional engagement

Australia-based BlueScope Steel Ltd. has provided a letter to the consortium comprising SGH Ltd. and Steel Dynamics Inc. in response to its revised nonbinding acquisition proposal submitted Feb. 18, which the consortium said at that time was its final offer. The letter, signed by board Chair Jane McAloon, includes the board’s assessment of the proposal and the terms under which it would be willing to engage in further discussions pertaining to a transaction with SGH and SDI.

In the letter, she writes that the BlueScope board has assessed that in light of its AU$1 (71 cents) per share special dividend declared in early January and already paid to shareholders, its AU 65 cents (46 cents) per share interim dividend declared as part of BlueScope's first half fiscal 2026 results Feb. 16 and the company’s plans to distribute AU$3 ($2.13) per share in calendar year 2026 (comprising the AU$1.65, or $1.17, per share referred to previously and a further AU$1.35, or 96 cents, of distributions) as part of its revised capital management framework the consideration would be only AU$31 per share given that a transaction could not be completed prior to the payment of the further distributions BlueScope announced.

“If a transaction [was] completed in calendar year 2027, that would cause a further reduction in the offer price below AU$31 ($22) per share,” McAloon writes, asking the consortium to confirm that the board's assessment of the structure of the proposed offer is correct.

“If our assessment is correct, it would appear that the consortium is proposing to retain the benefit of all the cash flow of BlueScope effectively from 1 July 2025 for a business it would be acquiring in late 2026 at the earliest and possibly well into 2027. These adjustments represent a material sum that would be transferred to the consortium, thus diminishing the cash consideration to our shareholders as presented in the revised proposal.”

McAloon writes that the most recent proposal “does not adequately address our valuation concerns,” adding, “Notwithstanding your ‘best and final’ statement, we consider that there are various ways to increase the value that BlueScope shareholders could receive.”

The letter also notes that if the consortium provides some of the more important assumptions relevant to the revised proposal, such as hot-rolled coil spreads, foreign exchange rates, property value and cash flows, the board will provide feedback on these assumptions.

She also points to “onerous conditions” of the revised proposal that includes "hard" exclusivity (covering no-shop, no-talk, no-due-diligence and notification and matching rights) from the date of any process and exclusivity deed, extending for 30 days after the consortium has been granted access to a substantially populated data room” and the requirement that the board confirm its intention to unanimously recommend the purchase in advance of due diligence.

In the letter, McAloon says such requirements are” inappropriate given the nature of the revised proposal, which remains nonbinding, indicative [and] conditional on your due diligence and arranging debt finance and does not address the board's valuation concerns.”

Referencing Australia’s Takeovers Panel’s guidance, McAloon says hard exclusivity at the nonbinding, indicative proposal stage should only be granted in exceptional circumstances and that such circumstances don’t exist in this case. For these reasons, the board notes that if it were to further engage with Australia-based SGH and Fort Wayne, Indiana-based SDI, it would be on a nonexclusive basis given its fiduciary obligation to consider any proposal that could be in the interests of shareholders.

McAloon also reiterates her request for the consortium’s value attribution between BlueScope's North American operations and its rest-of-the-world operations, which SGH and SDI have declined to provide to date, she says.

“We consider this information to be of significant importance to both the Board and BlueScope shareholders in assessing your proposal to acquire BlueScope for two reasons."

The letter also notes that the on-sale price evidently has been agreed to between SGH and SDI. “This will need to be disclosed to all of our respective shareholders, including to BlueScope's shareholders as part of the scheme of arrangement documentation if the transaction proceeds. In the context of you seeking board support for your revised proposal, it is important for the board to understand this value attribution, and we reiterate our request that you disclose this information.

Also related to the on-sale, McAloon writes that the revised proposal is unclear on whether the proposed acquisition of BlueScope by SGH is conditional on the on-sale of BlueScope's North American operations to SDI. “This would have a material impact on the expected timeframe and execution risks associated with transaction completion.”

The BlueScope board is requesting clarification on whether the conditions of the on-sale of BlueScope's North America operations by SGH to SDI are also conditions of the proposed scheme of arrangement to be put to BlueScope's shareholders.

The letter also references that the revised proposal notes that it is "not subject to a financing condition,” but notes that attached letters from J.P. Morgan and ANZ are nonbinding and highly conditional. The board, therefore, is requesting further detail about how the consortium sees this operating and the steps necessary for those commitments to become binding and unconditional.

McAloon concludes the letter with, “If you are able to address the matters we have raised in this letter including, importantly, increasing the value of your proposal for all BlueScope shareholders, the board is open to further engagement with you, including providing some due diligence information.”