|

Russel Metals Inc., one of North America’s largest metal distribution and processing companies, is focused on creating ‘value through diligent emphasis on bottom line performance and effective asset management throughout the organization’  It pursues these objectives, in part, through the selective acquisition of firms that can either increase the ‘mass’ of Russel Metals’ operations or fill a niche market the firm does not service.  This acquisition strategy is a core management philosophy.  Davies represented Russel Metals, a long-standing client of the firm, in its 2003 $185 million acquisition of Leroux Steel Inc. - a strategic acquisition extending Russel Metals’ presence in the Quebec market.

The acquisition was an intricate matter because of the ownership structure of Leroux Steel, the deal structure requirements of Russel Metals and the inter-provincial nature of the transaction.  Integration and tax issues also arose because Russel Metals, a federally incorporated company, was purchasing a company registered under Quebec’s Companies Act.  In response to these challenges, Davies assembled a team of lawyers from its Montreal and Toronto offices with specific knowledge of the regulations in the two jurisdictions.  These lawyers were drawn from Davies’ corporate, securities, tax and competition practices and were responsible for conducting due diligence and negotiations, structuring the offering and closing the deal.

There were complexities to the securities and tax aspects of the acquisition because of the ownership structure of the seller and the offering structure developed for Russel Metals by Davies.  To complete the acquisition, Russel Metals had to acquire a majority of Leroux Steel’s two outstanding classes of shares and two series of convertible debentures.   To do so, Davies created a multi-tiered offering structure that allowed the sellers to choose cash, stock, or cash and stock in exchange for their Leroux Steel securities.  This structure allowed investors to select the most efficient and cost effective transfer of assets, customizing their selection based on their particular tax position.  It was designed by Davies to provided a cost and tax effective structure for both the sellers and the acquirer.

The overall results of the acquisition - Leroux Steel has had an immediate and positive impact on Russel Metals earnings. Leroux Steel has provided the market presence desired by Russel Metals in Quebec.  Davies and Russel Metals continue their long standing relationship and are presently completing the integration of the acquisition into the overall ownership structure of Russel Metals. 

|

2003