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SAO PAULO, July 14 (Reuters) - Gerdau SA, the Americas’ largest steelmaking group, announced on Tuesday a broad corporate reorganization aimed at taking better advantage of the firm’s growing scale and pricing power in markets other than home turf Brazil.
Under the plan, which the Porto Alegre, Brazil-based firm announced in a securities filing, Gerdau will pay 1.986 billion reais ($633 million) to buy out minority shareholders in four units, integrate South American operations outside Brazil in a single unit and allow Brazil operations to absorb the iron ore unit.
The move underscores efforts by Chief Executive Officer André Gerdau Johannpeter to reduce the impact of Brazil’s worst economic downturn in 25 years on earnings and output. Exports and activity outside Brazil are expected to partly offset a double-digit decline in domestic steel sales, flat prices and stagnant margins.
Shares of Gerdau slumped as investors wondered whether paying such a price for the remaining stakes in the four units - Gerdau Aços Longos SA, Gerdau Açominas SA, Gerdau Aços Especiais SA and Gerdau América Latina Participações SA - makes sense at a time when sales are plunging and unwanted inventory is climbing.
Preferred shares of Gerdau, the company’s most widely traded class of stock, sank 4 percent to 6.75 reais, trading near their lowest level in 10 years. The stock is down 48 percent in the past 12 months.
Metalúrgica Gerdau SA, the investment holding company that controls Gerdau, shed 5.2 percent on Tuesday.
Mills in Mexico and the Caribbean will also be gobbled up by Gerdau’s increasingly relevant North America unit, which is starting to reap the benefits of a recovering economy in the United States.
Gerdau will disburse 339 million reais in cash for the stakes, with the remainder being paid with 206 million reais worth of stock, 802 million reais worth of shares in an asset-backed security fund and 639 million reais worth of installments between 2016 and 2022.
The reorganization is “part of necessary actions to adapt Gerdau to a current scenario demanding more competitiveness,” the filing quoted Chief Financial Officer Andre Pires de Oliveira Dias as saying.
The company plans to formally present the new structure in its third-quarter earnings report, the filing added.
$1 = 3.1365 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Franklin Paul and Meredith Mazzilli