Sims Announces Hugo Neu Acquisition

The Sims Group, an Australian-based scrap metal recycling company, announced an agreement to merge its metal recycling operation with Hugo Neu Corp., a New York City-based recycling company.

The merger follows quickly on the delinking of a joint venture arrangement Hugo Neu has had with Schnitzer Steel. That deal separated the facilities those two companies operated jointly, and led the way for combining the two companies.

The combined company will go by the name Sims Newco. According to Sims, the combined company will be the largest metal recycler in the world, based on market capitalization. Hugo Neu is one of the largest scrap exporters in the United States, handling around 20 percent of all the ferrous scrap exported from deep water ports in the United States. Hugo Neu operates two large deepwater ports, one in the Los Angeles area, the other out of the New York/New Jersey port area. Additionally, the company has 15 scrap metal collection and processing facilities.

According to the press announcement by Sims Group, privately owned Hugo Neu had sales of around $1.35 billion last year.

Paul Mazoudier, Chairman of Sims Group said “This merger will transform the company and builds on Sims Group’s proven track record of successful international expansion. It will position Sims Group as the global leader of the metal recycling industry, with a sound platform to adopt a broader approach to environmentally sound post consumer recycling. On behalf of the Sims Group Directors, I hope the proposed merger will receive shareholder support and we look forward to welcoming John Neu and his nominee to the new Sims Group Board, as well as the Hugo Neu management team and employees to the Group.”

Jeremy Sutcliffe, Group CEO of Sims Group said “The cornerstone of our corporate goal has been to continue expanding Sims Group’s core metal recycling business internationally, provided strict acquisition criteria are met. These include the requirement that any new business holds the number 1 or 2 market position in relevant markets, provides domestic and export marketing flexibility, and offers a platform for future growth, while also enhancing shareholder value.”

“The merger with Hugo Neu satisfies all of these criteria and in particular consolidates Sims Group’s North American West and East Coast market positions and delivers a significant platform from which to grow. The New York City recycling contract is a particularly exciting opportunity. I am confident shareholders will recognise this and vote in favour of the merger.”

John Neu, chairman of Hugo Neu, said “This merger is the most important development in Hugo Neu’s history since my father founded the business in New York in 1945. The combination of Hugo Neu’s recycling operations with Sims Group allows us to apply our combined talent, energy, vision and capital to create a leading global recycling and environmental company.

Sims Newco will have more than 120 physical operations globally, with a combined volume or more than 9 million metric tons of scrap metal.

Broken out by regions, the earnings by operating region are the following: United States and Canada, 60 percent; Australia and New Zealand, 25 percent; and the UK and Europe, 15 percent.

It is estimated that export sales make up around 65 of the sales, while domestic sales constitute the remaining 35 percent.

The deal is expected to be complete by early this fall.

While reporting the acquisition, Sims also noted that it is lowering its earnings outlook for the year due to slumping ferrous scrap prices. “Full year earnings are now expected to be slightly below our previous forecast of A$190 million. This is as a result of the significant decrease in ferrous metal prices in the month of June, which led to a downward revaluation of unsold inventory, as well as lower domestic selling prices,” Sutcliffe said.

“Reflecting these conditions, Q1 2006 fiscal year earnings are expected to be significantly below the same period in fiscal 2005. On a more positive note, ferrous metal prices, while remaining volatile, appear to be rebounding domestically in the United States and we believe prices have stabilized in Asia.”