November 17, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of steelmaker Ternium (NYSE: TX ) are plunging today by as much as 19% after the company confirmed that it is in talks with Brazilian rival Usiminas over potentially buying a stake in the company.
So what: Ternium said it is considering taking a minority stake since industry conditions for steel mills have deteriorated in the region, although no agreement has been finalized between the two. Investors are rattled and concerned that the deal has too much risk and not enough reward for the Luxembourg-based company.
Now what: The company has reportedly made an offer that represents a 72% premium over recent prices and follows up recent speculation that Usiminas was putting itself up for sale to rival CSN. Analysts are also skeptical of the price tag when considering rising raw materials costs, poor availability of energy sources, widespread international competition, and weak pricing power domestically. In addition, Ternium likely wouldn't be able to capitalize on synergies from the deal.
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