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Japan's Mitsui buying Steel Technologies

Japanese trading house Mitsui & Co. said on Wednesday it would purchase U.S. metals processor Steel Technologies in a deal worth about $400 million, excluding debt.

The acquisition, which some analysts said could presage further Japanese moves in the U.S. steel sector, sent Steel Tech's stock soaring and it closed the day's trading on the Nasdaq nearly 60% higher, at $29.32.

That was close to the $30 per-share the two companies announced Mitsui USA will pay to acquire all outstanding Steel Technologies stock.

The offer represents a 63% premium over the previous session's closing price, said the companies, which have had a relationship though a joint venture for 20 years.

The all-cash transaction, valued at approximately $532 million including retained debt of $136 million, is subject to shareholder approval and regulatory review, and is expected to close by the end of June, the companies said.

Louisville, Kentucky-based Steel Technologies has a market value of $240 million, according to Reuters data.

A Nikkei news report said Mitsui is buying Steel Technologies to boost its steel product deliveries to Japanese automakers operating in the U.S..

Analyst Michelle Applebaum, of Applebaum Research in Chicago, agreed. "There has been pressure from Japanese automakers for vendors here to become larger. I think the timing of this deal may have been influenced by that."

She said since the 1980's, when the industry was awash in red ink and bankruptcies, there had been little Japanese activity in the U.S. steel sector. But Mitsui's move might open the floodgates for more Japanese interest in U.S. steelmakers as well as processors, now the sector is thriving.

"When you add up the implications of the situation, when you're talking about potential acquirers in the U.S., they could now be Japanese," said Applebaum.

Steel Technologies does not manufacture steel, but operates 25 steel processing facilities in North America that fashion steel to the specific needs of various industries, such as automobiles and appliances. When the merger is completed, it will operate as a separate, wholly owned subsidiary with the current management team.

"As a result of our 20-year strategic partnership, Mitsui USA and Steel Technologies know each other's strengths quite well," said Ichizo Kutsukake, Senior Vice President of Mitsui USA's Iron and Steel Products Division.

"We intend to leverage Mitsui USA's investment and logistics capabilities to position Steel Technologies as an important element in implementing our North American business strategy and to enhance our upstream/downstream value chain."

Last month, Steel Technologies said quarterly profit slipped as a result of soft demand and steel price volatility. Net earnings for the first fiscal quarter were $873,000, or 7 cents per share, compared with $3.3 million, or 26 cents per share, a year earlier.

Sales in the quarter were $200.8 million, down slightly from $201.2 million a year earlier, while sales volumes dropped 9%.