Shares of Steel Dynamics Inc. closed down almost 5 percent Friday after an analyst said the steel producer's recent purchase of a scrap metal company would be slightly dilutive.
A unit of the Fort Wayne, Ind.-based company agreed to buy the remaining interest in Recycle South LLC in a cash and stock deal valued at about $370 million to expand its recycled metals business.
Recycle South equity owners will get about 3.9 million Steel Dynamics shares, which the company valued at about $138 million, and $232 million in cash. The companies value the deal at $500 million, which includes $135 million in debt and other liabilities.
UBS analyst Timna Tanners said in an analyst note that the deal "appears slightly dilutive, near-term" and that _ based on her profit margin assumptions _ "the deal looks expensive."
Shares of Steel Dynamics fell $1.68, or 4.6 percent, to close at $34.49.
Tanners has a $39 price target and a "Neutral" rating on the shares.
"We like Steel Dynamics' growth and think long-term expansion projects can help offset potential non-residential weakness," she wrote. But she also said the company has a relatively high debt-to-capitalization ratio.
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