Steel and Tube buys part of giant Tata Steel

Listed Steel and Tube is spending $27.5 million buying Tata Steel International Australasia, a division of giant global steel supplier Tata Steel, of India.

Tata Steel International supplies stainless steel, engineering steels and composite floor decks to the New Zealand and Pacific Island markets.

Steel and Tube chief executive Dave Taylor said the acquisition would further strengthen the company's position as New Zealand's leading steel distribution company, in construction, manufacturing and rural businesses around the country.

Steel and Tube shares were up slightly, at $2.97, following the announcement.

Forsyth Barr broker Andrew Rooney said the purchase was ''a positive step'' for Steel and Tube, as it sought to solidify its market-leading steel-distribution position in New Zealand.

Craigs Investment Partners broker Peter McIntyre said that the acquisition was a ''good strategic fit'', and with combined operation synergies between Steel and Tube and Tata Steel International Australasia should provide good growth opportunities.

Mr Rooney said Tata NZ operated from eight locations: Auckland, Hamilton, Tauranga, New Plymouth, Hastings, Wellington, Nelson and Christchurch, which he expected would provide synergy benefits based on site consolidation.

According to Companies Office records, Tata Steel International (Australasia) had revenue of $74.4 million for the year to March, compared with $93.3 million the previous year.

Steel and Tube's half year to December booked an increase from $199.6 million last year to $211.7 million, while its after-tax profit rose from $7.3 million to $8 million.

''An acquisition of this type has been expected for a long time, given the oversupply in the steel distribution industry, albeit this is relatively niche.

''We expect the acquisition strengthens Steel and Tube's industry position more so than removing significant oversupply,'' Mr Rooney said.

However, Mr Rooney cautioned that oversupply in the sector would continue to exist following the acquisition and an expected consolidation of assets would be a constraint on Steel and Tube's profit margins.

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