US Steel Corp, the biggest US-based steelmaker, agreed to acquire Stelco Inc for US$1.1 billion, buying the last Canadian-owned mill and adding iron ore supply as raw material prices rise.
Stelco shareholders will receive C$38.50 (US$36.62) a share from Pittsburgh-based US Steel, the companies said in a statement, 43 percent more than Hamilton, Ontario-based Stelco's closing price of C$26.93 in Toronto trading on Friday.
Along with raw materials, the acquisition will increase US Steel's capacity to make metal used in cars and oil rigs.
Rising material costs and competition from steel produced in China has spurred US$40 billion of takeover offers for steel mills this year, Bloomberg data showed.
"Bigger is better and steelmakers need to consolidate to bargain with the raw material suppliers," Mark Pervan, a commodities strategist at Australia & New Zealand Banking Group Ltd, said from Melbourne.
"There's also a need to get more efficient to fight rising Chinese competition," he said.
US Steel gained US$2.59 to finish at US$93.39 in New York Stock Exchange composite trading on Friday.
US Steel will assume US$760 million of Stelco's debt a statement distributed by PR Newswire said on Sunday.
US Steel plans to fund the purchase using existing cash and new debt worth US$900 million underwritten by JPMorgan Chase & Co and Bank of Nova Scotia.
JPMorgan is the adviser to US Steel, while CIBC World Markets and UBS AG advised Stelco.
Tricap Management Ltd, Sunrise Partners Ltd Partnership, Appaloosa Management LP and other shareholders owning more than 76 percent of Stelco agreed to sell their stock in the company, which was founded in 1910.
The acquisition will increase US Steel's raw steel production capacity to 33 million tonnes, adding interests in iron ore and coke operations in the US and Canada.
It will also result in pretax cost savings of more than US$100 million by the end of next year, and will add to earnings per share, US Steel said.
Stelco, which came out of bankruptcy in April last year, said in June it was considering selling itself after its last domestic rivals were bought this year.
It sold 3.7 million tonnes of steel last year.
Ipsco Inc, based in Lisle, Illinois, and incorporated in Regina, Saskatchewan, agreed to be bought by Sweden's SSAB Svenskt Staal AB for US$7.7 billion on May 3.
Essar Global Ltd., India's fourth-biggest steelmaker, agreed to buy Canada's Algoma Steel Inc on April 15 for C$1.85 billion to set up a base for North American operations as it expands internationally.
US steel imports surged to a record 45 million tonnes last year as shipments from China more than doubled.
Chinese exports will continue to rise and hurt profits of US and European rivals, Sempra Metals said in June.
The price of iron ore has risen for five straight years to a record and may rise 25 percent next year, Credit Suisse Group said.
US steel sheet prices fell for a fourth-straight month last month as demand from manufacturers declined and distributors reduced inventories, Purchasing magazine said.
Hot-rolled steel sheet, used to make cars and appliances, fell 3 percent to an average of US$516 a tonne from US$532 in June, the magazine said last month.