Gerdau to Sell Up to $2.5 Billion of New Stock; Shares Plunge in Sao Paulo

Gerdau SA (GGBR4) plans to sell as much as 4.2 billion reais ($2.5 billion) of stock, boosting speculation that Latin America’s largest steelmaker may buy a stake in a Brazilian rival. Gerdau’s voting stock fell the most in more than nine months.

The company aims to raise 3.8 billion reais to 4.2 billion reais in a primary offering of common and preferred shares in Brazil and abroad on or about March 23, Gerdau said today in a regulatory filing. Metalurgica Gerdau SA, which controls Porto Alegre, Brazil-based Gerdau, and Gerdau BG Participacoes SA also plan to sell existing preferred shares in a secondary offering.

Investors are speculating Gerdau may buy part of Usinas Siderurgicas de Minas Gerais SA, Bank of America Corp. and JPMorgan Chase & Co. said in e-mails to clients on March 14. Today’s announcement may rekindle bets on a stake acquisition, said Marcelo Varejao, an analyst at Socopa Corretora in Sao Paulo.

“This strengthens market rumors that Gerdau may possibly buy Usiminas,” he said in a telephone interview. “Outside of this, Gerdau has no need to increase its capital.”

Proceeds from the sale of a much as 68 million common shares and 203.8 million preferred shares will be used to fund investments, Gerdau said in a separate statement. The company’s controlling shareholders will use funds from the secondary offering to “exercise their priority rights” in the primary sale. Gerdau didn’t specify which stock class will be acquired.

Gerdau Declines
Gerdau’s voting stock fell 4.4 percent to 16.15 reais at 2:35 p.m. New York time in Sao Paulo trading, after earlier dropping as much as 5.3 percent, the biggest decline since June 4. Preferred shares fell as much as 4.6 percent to 20.32 reais.

The common shares of Usiminas, as Brazil’s second-largest steelmaker is known, rose 2.5 percent to 30 reais in Sao Paulo. The stock, which earlier climbed as much as 4.2 percent, has surged 40 percent this year, compared with a 2.7 percent drop for Brazil’s benchmark Bovespa index.

Gerdau’s press office confirmed the press release and declined to provide additional details. An official at an outside press agency representing Usiminas, who asked not to be identified because of internal policies, couldn’t immediately comment. The company also said in the statement it may exercise an over-allotment option.

Carmakers, Builders
A stake in Usiminas would help Gerdau expand into the flat- steel business for the car industry, said Luiz Augusto Pacheco, an analyst at Omar Camargo Corretora in Curitiba, Brazil. Gerdau makes so-called long-steel products that are mainly used in the construction industry, he said.

“If they can buy Usiminas it would be a good deal,” Pacheco said in a telephone interview. “Usiminas makes more flat steel for refrigerators and cars. They would complement each other well.”

Nippon Steel Corp. said Feb. 18 it will retain control of Usiminas together with its local partners, following speculation that Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, may challenge the group. Nippon, Votorantim Participacoes SA and Camargo Correa SA together own 53.7 percent of Usiminas.

CSN said in January it held about 5 percent of each class of Usiminas’s stock and may further increase its stake to a level that could alter the competitor’s management or control structure.