Scrapping Together a Dominant Recycler

Metal Management (NYSE: MM  ) first hit my radar when it showed up in a screen for cheap stocks. The company subsequently won my heart with its refusal to "chase and choke" on high scrap metal prices, to borrow CEO Daniel Dienst's colorful phrase. Regrettably, I never got off my duff and picked up shares, but someone's now poised to buy them all.

Metal Management has agreed to a buyout from Aussie recycler Sims Group. The companies state that their union would form the world's largest publicly traded recycler. I think that Nucor (NYSE: NUE  ) might dispute that claim. On the face of it, it's a steel company, but Nucor's also a huge recycler of scrap steel for use in its mini mills. Still, any way you shred it, Sims Metal Management would be a dominant player in the global scrap game.

One of the reasons I like this tie-up is that the companies share similar financial characteristics. Both display high sales growth, strong profitability, and low debt. I would expect all of these characteristics to persist through a merger, because this is an all-stock deal.

The stock swap means there won't be any credit-crunch-induced nail biting a la TXU (NYSE: TXU  ) , First Data (NYSE: FDC  ) , or Alltel (NYSE: AT  ) . It also begs the question: Exactly what shares will American investors receive? Sims Group would issue NYSE-listed American depositary shares for this purpose. This would be a welcome change from the delisting debacle that's seeing so many international businesses disappear from American exchanges.

I also like this deal because of the proposed management arrangement. Dienst would remain CEO of the combined group, and, as I noted in May, he not only speaks but also acts as a steward of shareholder capital. With a larger North American asset base at his disposal (Sims' man will be heading up European and Australian operations), I would expect very good things to come of this new Metal Management.


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