Worthington Steel’s Strategic Move: A $2.4 Billion Acquisition of Klöckner & Co.

Worthington Steel US9821041012

In a significant strategic expansion, Worthington Steel announced a binding agreement yesterday to acquire Klöckner & Co. through a voluntary public tender offer. The all-cash transaction, valued at approximately $2.4 billion, is poised to reshape the competitive landscape within the steel service center sector. The central question for investors is whether the company can successfully deliver on its promised synergies and execute a swift debt reduction plan.

The announcement triggered immediate positive reactions in the equity markets. Shares of Worthington Steel climbed in both pre-market and regular trading, reaching new 52-week highs between approximately $39.25 and $40.06. Klöckner & Co. stock surged by more than 26%, narrowing the arbitrage gap as it approached the offer price.

Key details of the acquisition proposal include:
* Offer Price: €11.00 per share in cash
* Enterprise Value: Roughly $2.4 billion (approximately €2.1 billion)
* Valuation Multiple: ~8.5x trailing EV/EBITDA, or 5.5x when including projected synergies
* Expected Combined Revenue: Exceeding $9.5 billion annually
* Target Closing: Second half of 2026

The €11.00 per share bid represents a premium of about 98% over Klöckner's volume-weighted average share price for the three months preceding the announcement.

Financing Structure and Post-Merger Integration

Worthington intends to fund the purchase using existing cash reserves and newly issued debt. This financing strategy is expected to increase the company's net financial debt to a leverage ratio of approximately 4.0x at the time of closing. Management has outlined a clear goal to reduce this ratio to below 2.5x within a 24-month period.

The financial rationale for the deal hinges on achieving annual run-rate cost synergies of around $150 million, which the company aims to fully realize by the 2028 fiscal year. Worthington anticipates that the transaction will be accretive to earnings per share within the first full year following completion. The pace of the planned deleveraging is therefore critically dependent on capturing these $150 million in synergies and the future free cash flow generation of the combined entity.

Regulatory Hurdles and Shareholder Approval

The path to finalizing the deal involves two major milestones: regulatory clearance and achieving the necessary shareholder acceptance. The tender offer requires approval from the holders of at least 65% of Klöckner's outstanding shares.

Prospects for success received a substantial boost from the binding commitment of SWOCTEM GmbH, Klöckner's largest shareholder with a stake of about 42%. Furthermore, both Klöckner's Management Board and Supervisory Board have recommended that shareholders accept the offer.

With a targeted completion date in the latter half of 2026, the focus will remain on Worthington Steel's execution capabilities—specifically, its ability to integrate the operations, realize the projected synergies, and sustainably manage its expanded balance sheet.