Nucor's Independence Tube Purchase Is No Surprise

On Sept. 19,

This acquisition marks Nucor's largest since its $770 million purchase of Gallatin Steel in 2014 and its $605 million acquisition of Skyline Steel in 2012. Given Nucor's healthy balance sheet, sizable cash position of $1.8 billion at the end of the second quarter, and solid free cash flow generation, we aren't surprised at the announcement of an acquisition. The announcement of additional, although likely smaller, acquisitions remains a distinct possibility, consistent with Nucor's $29 million tuck-in acquisition of Joy Global's Texas steel plate mill in July.

ITC provides Nucor with additional exposure to the nonresidential construction end market, as the company produces 600,000 tons of hollow structural sections (HSS) annually. For comparison, Nucor's Steel Mills segment shipped 2.2 million tons of structural steel in 2015. Manufactured in round, square, and rectangular shapes, HSS are typically used in nonresidential construction applications including buildings and bridges. Nucor will likely supply ITC's facilities via its nearby sheet mills in Alabama, Indiana, and Kentucky.

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