1
EXHIBIT (b)(2)
INVESTMENT BANKING PRESENTATION
TO
THE SPECIAL COMMITTEE OF
THE BOARD OF DIRECTORS OF
CHAPARRAL STEEL COMPANY
JUNE 20, 1997
THE ROBINSON-HUMPHREY COMPANY, INC.
INVESTMENT BANKERS SINCE 1894
2
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
I. MARKET COMPARISON OF SELECTED PUBLIC COMPANIES AND IMPLIED VALUATION
ANALYSIS
II. DISCOUNTED CASH FLOW MODEL
III. ANALYSIS OF PREMIUMS FOR MINORITY INTEREST ACQUISITIONS IN GOING PRIVATE
TRANSACTIONS
IV. ADJUSTED BOOK VALUE ANALYSIS
V. VALUATION BASED ON ANNUAL TONS CAPACITY
VI. DILUTION ANALYSIS
VII. ANALYSIS OF PROJECTED EARNINGS
VIII. RETURNS ANALYSIS BASED ON INITIAL PURCHASE AT IPO
3
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
EARNINGS PER SHARE [1]
MARKET PRICES AS ----------------------
LATEST 52 WEEK PRICE % OF CAL. CAL.
TICKER EXCHANGE COMPANY FYE FILING HIGH LOW 6/18/97 HIGH LTM 1997 1998
- ------ -------- ------- --- ------ ---- --- ------- ---- --- ---- ----
MINIMILL STEEL COMPANIES
- ------------------------
BIR NYSE Birmingham Steel Corp. JE 3/97 $22.00 $14.12 $16.25 73.9% $0.59 $0.82 $1.69
CMC NYSE Commercial Metals Co. AU 2/97 33.50 27.12 31.38 93.7% 2.72 2.79 3.55
IPS NYSE IPSCO Inc. (in US$) DC 12/96 32.37 21.12 31.50 97.3% 2.27 2.52 3.43
KESI OTC Kentucky Electric Steel SP 3/97 8.62 4.12 5.75 66.7% (0.73) 0.00 0.65
LUC NYSE Lukens Inc. DC 3/97 26.12 13.50 19.13 73.2% (0.78) 0.24 1.42
NSS NYSE NS Group, Inc. SP 3/97 9.25 2.50 9.25 100.0% (0.23) NA NA
NWSW OTC Northwestern Steel & Wire JL 1/97 7.12 2.12 2.63 36.9% (0.14) (0.11) (0.12)
NUE OTC Nucor Corporation DC 3/97 59.50 44.75 56.75 95.4% 2.97 3.41 3.89
OS NYSE Oregon Steel Mills, Inc. DC 3/97 22.50 12.50 21.25 94.4% 0.96 1.09 1.61
NX NYSE Quanex Corporation OC 1/97 29.50 19.37 29.38 99.6% 2.23 2.51 3.21 F
RESC OTC Roanoke Electric Steel OC 1/97 17.75 11.75 16.25 91.5% 1.87 2.09 2.25 F
SCHN OTC Schnitzer Steel Industries AU 2/97 31.25 22.00 25.50 81.6% 1.39 1.78 2.26
SWVA OTC Steel Co. of West Virginia DC 3/97 10.75 5.25 9.75 90.7% 0.48 0.95 1.16
STLD OTC Steel Dynamics Inc. DC 3/97 25.37 16.50 22.00 86.7% 0.49 0.98 1.56
--------------------------------------------------------------------------------------------------------------------------
AVERAGE 84.4%
MEDIAN 91.1%
==========================================================================================================================
GIRDER MY 5/97 $15.37 $10.50 $15.00 97.6% $1.41 $1.43 $1.46
PRICE/EARNINGS RATIO
-------------------------
CAL. CAL. SHARES MARKET BOOK MARKET/
TICKER EXCHANGE COMPANY LTM 1997 1998 OUTSTANDING CAP'N VALUE BOOK
- ------ ------- ------- --- ---- ---- ----------- ------- ------- -------
MINIMILL STEEL COMPANIES (MM) ($MM) ($MM)
- ------------------------
BIR NYSE Birmingham Steel Corp. 27.5 X 19.8 X 9.6 X 29.678 $482.3 $ 472.9 1.0 X
CMC NYSE Commercial Metals Co. 11.5 11.2 8.8 15.293 479.8 352.0 1.4
IPS NYSE IPSCO Inc. (in US$) 13.9 12.5 9.2 27.104 853.8 585.5 1.5
KESI OTC Kentucky Electric Steel NM NM 8.8 4.623 26.6 33.7 0.8
LUC NYSE Lukens Inc. NM 79.7 * 13.5 14.940 285.7 238.5 1.2
NSS NYSE NS Group, Inc. NM NA NA 13.866 128.3 59.1 2.2
NWSW OTC Northwestern Steel & Wire NM NM NM 24.509 64.3 97.4 0.7
NUE OTC Nucor Corporation 19.1 16.6 14.6 87.852 4,985.6 1,666.9 3.0
OS NYSE Oregon Steel Mills, Inc. 22.1 19.5 13.2 25.693 546.0 356.2 1.5
NX NYSE Quanex Corporation 13.2 11.7 9.2 13.678 401.8 200.5 2.0
RESC OTC Roanoke Electric Steel 8.7 7.8 7.2 7.492 121.7 95.4 1.3
SCHN OTC Schnitzer Steel Industries 18.3 14.3 11.3 10.348 263.9 226.9 1.2
SWVA OTC Steel Co. of West Virginia 20.3 10.3 8.4 5.991 58.4 50.6 1.2
STLD OTC Steel Dynamics Inc. 44.9 * 22.4 14.1 47.853 1,052.8 279.3 3.8 *
-----------------------------------------------------------------------------------------------------------------
AVERAGE 17.2 x 14.6 x 10.7 x 1.4 x
MEDIAN 18.7 x 14.3 x 9.4 x 1.3 x
=================================================================================================================
GIRDER 10.6 x 10.5 x 10.3 x 28.404 $ 426.1 $ 326.3 1.3 x
- ------------------------------------------------
* Excluded from average. F - Fiscal Year Estimate.
NA - Not Available
NM - Not Meaningful
[1] Estimates are from the First Call Research Network dated 6/18/97.
4
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
MARKET COMPARISON OF SELECTED PUBLIC COMPANIES
LTM
TOTAL TOTAL TOTAL --------------------------------- EBIT EBITDA
COMPANY DEBT CASH FIRM VALUE[1] REVENUES EBIT EBITDA MARGIN MARGIN
- ------- ----- ---- ------------- -------- ---- ------ ------ ------
($MM) ($MM) ($MM) ($MM) ($MM) ($MM)
MINIMILL STEEL COMPANIES
- ------------------------
Birmingham Steel Corp. $518.5 $ 1.8 $ 998.0 $ 932.2 $ 49.6 [2] $ 93.0 [2] 5.3% 10.0%
Commercial Metals Co. 214.0 15.3 678.5 2,270.7 81.0 123.1 3.6% 5.4%
IPSCO Inc. (in US$) 285.3 167.8 971.4 595.6 91.6 105.9 15.4% 17.8%
Kentucky Electric Steel 30.2 0.1 56.7 96.5 (6.7) (3.4) (6.9%) (3.5%)
Lukens Inc. 262.7 9.1 539.3 954.3 5.1 54.6 0.5% 5.7%
NS Group, Inc. 166.2 19.8 274.7 431.6 23.4 42.0 5.4% 9.7%
Northwestern Steel & Wire 195.8 0.7 259.5 639.9 19.2 45.0 3.0% 7.0%
Nucor Corporation 188.2 168.4 5,005.4 3,781.4 409.2 602.3 10.8% 15.9%
Oregon Steel Mills, Inc. 347.6 7.8 885.8 67.07 49.8 78.9 7.4% 11.7%
Quanex Corporation 284.5 37.2 649.0 939.5 69.1 108.9 7.4% 11.6%
Roanoke Electric Steel 36.0 11.2 146.5 246.2 24.1 32.9 9.8% 13.3%
Schnitzer Steel Industries 108.1 6.9 365.0 344.3 23.5 39.2 6.8% 11.4%
Steel Co. of West Virginia 17.5 0.0 75.9 93.1 5.9 12.8 6.4% 13.8%
Steel Dynamics Inc. 206.4 48.2 1,211.0 318.4 42.7 64.2 13.4% 20.2%
----------------------------------------------------------------------------------------------------------------
AVERAGE 6.3% 10.7%
MEDIAN 6.6% 11.5%
================================================================================================================
GIRDER $ 65.0 $ 14.3 $ 476.8 $ 616.7 $ 69.8 $103.0 11.3% 16.7%
3 YEAR CAGR
FIRM VALUE TO: ------------------
------------------------------------- NET
COMPANY REVENUES EBIT EBITDA REVENUE INCOME
- ------- -------- ---- ------ -------- ------
MINIMILL STEEL COMPANIES
- ------------------------
Birmingham Steel Corp. 1.07 X 20.1 X 10.7 x 8.8% NM
Commercial Metals Co. 0.30 8.4 5.5 18.1% 32.6%
IPSCO Inc. (in US$) 1.63 10.6 9.2 (2.6%) 20.1%
Kentucky Electric Steel 0.59 NM NM (2.1%) NM
Lukens Inc. 0.57 106.3* 9.9 1.2% NM
NS Group, Inc. 0.64 11.8 6.5 16.2% NM
Northwestern Steel & Wire 0.41 13.5 5.8 4.7% 43.7%
Nucor Corporation 1.32 12.2 8.3 10.7% 4.6%
Oregon Steel Mills, Inc. 1.32 17.8 11.2 (4.0%) NM
Quanex Corporation 0.69 9.4 6.0 13.2% 32.1%
Roanoke Electric Steel 0.60 6.1 4.5 6.8% 14.0%
Schnitzer Steel Industries 1.06 15.5 9.3 13.9% 39.3%
Steel Co. of West Virginia 0.82 12.8 5.9 (12.4%) NM
Steel Dynamics Inc. 3.80 * 28.3 * 18.8 * NM NM
----------------------------------------------------------------------------
AVERAGE 0.85 X 12.6 x 7.7 x 5.6% 26.6%
MEDIAN 0.75 x 12.8 x 8.3 x 6.8% 32.1%
============================================================================
GIRDER 0.77 X 6.8 x 4.6 x 7.7% 43.2%
- -------------------------------------
* Excluded from average.
NA - Not applicable
NM - Not Meaningful
[1] Firm value equals market capitalization plus total debt and preferred
stock minus cash and marketable securities.
[2] Excludes $11.6 million loss provision on mill modernization.
5
PROJECT GIRDER
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PUBLIC COMPANIES UNIVERSE
(DOLLARS IN THOUSANDS)
AVERAGE MINIMILL STEEL COMPANIES MULTIPLES
----------------------------------------------------------------------------------
VALUATION CSM PRICE PRICE/ PRICE/ PRICE/
PARAMETER VALUE LTM EARNINGS CAL. 1997 EARNINGS CAL. 1997 EARNINGS BOOK
- --------- ----- ------------- ---------------------- ------------------ ------
LTM Earnings $40.2 17.2 x
Fiscal 1998 Earnings $61.8 14.6 x
Fiscal 1999 Earnings $65.2 10.7 x
Book Value at May 31, 1997 $326.3 1.4 x
AVERAGE MINIMOILL STEEL COMPANIES MULTIPLES
--------------------------------------------------------------- IMPLIED
VALUATION CSM FIRM VALUE/ FIRM/VALUE FIRM/VALUE FIRM TOTAL DEBT
PARAMETER VALUE LTM REVENUES LTM EBITDA LTM EBIT VALUE LESS CASH [1]
- --------- ----- ------------ ---------- ---------- ------ -------------
LTM Revenues $616.7 0.85 x $521.7 $50.7
LTM EBITDA $103.0 7.7 X $796.3 $50.7
LTM EBIT $ 69.8 12.6 X $877.2 $50.7
IMPLIED
IMPLIED EQUITY
VALUATION EQUITY VALUE
PARAMETER VALUE PER SHARE
- --------- ------- ---------
LTM Earnings $690.7 $24.32
Fiscal 1998 Earnings $903.1 $31.80
Fiscal 1999 Earnings $695.0 $24.47
Book Value at May 31, 1997 $471.3 $16.59
VALUATION
PARAMETER
- ---------
LTM Revenues $471.0 $16.58
LTM EBITDA $745.6 $26.25
LTM EBIT $826.4 $29.10
AVERAGE $686.2 $24.16
=========================================
MEDIAN $695.0 $24.47
=========================================
- --------------------------------------------------
* Excluded from average and median.
[1] Cash and debt as may 31, 1997.
6
PROJECT GIRDER
Purchase Price Matrix Based on EBITDA Multiples
- -------------------------------------------------------------------------------
(Dollars in Millions)
LTM EBITDA $103.0
Latest Net Debt $ 50.7
Shares 28.4
============================
EBITDA Multiple
----------------------------------------------------------------------------------------------
4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0
----------------------------------------------------------------------------------------------
Equity Value $361.2 $412.7 $464.2 $515.6 $567.1 $618.6 $670.1 $721.6 $773.1
Equity Value
per Share $12.72 $14.53 $16.34 $18.15 $19.97 $21.78 $23.59 $25.40 $27.22
7
Chaparral Steel Co
Price and Volume
Daily: 01/01/96 to 06/18/97
[GRAPH]
TICKER SYMBOL: CSM CUSIP NUMBER: 15942210
8
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
PROJECTED EBITDA MARGIN ASSUMPTIONS
- -------------------------------------------------------------------------------
PROJECTED FISCAL YEAR ENDING MAY 31,
----------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
----- ---- ---- ---- ---- ----
CASE 1 19.3% 20.0% 19.1% 21.5% 23.2% 25.0%
CASE 2 16.9% 17.8% 17.3% 19.2% 21.0% 23.0%
CASE 3 19.3% 20.0% 20.2% 22.4% 24.9% 28.0%
CASE 4 12.9% 13.8% 13.0% 14.9% 16.9% 18.9%
CASE 5 16.5% 17.9% 17.5% 19.6% 22.0% 24.1%
CASE 6 16.5% 17.9% 12.4% 14.7% 17.1% 19.3%
====================================================================================================================
HISTORICAL 10 YEAR AVG. 15.8% 15.8% 15.8% 15.8% 15.8% 15.8%
9
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
PROJECTED CASH FLOWS
FORECAST FOR FISCAL YEARS 1998 - 2003
- -------------------------------------------------------------------------------
HISTORICAL PROJECTED FISCAL YEAR ENDING MAY 31,
----------------------------------------
PROJECTIONS USED IN VALUATION (DOLLARS IN THOUSANDS): 1997 1998 1999 2000
- --------------------------------------------------- --------- -------- -------- --------
Sales $616,676 $705,569 $704,917 $ 957,727
Percent Change 14.4% -0.1% 35.9%
Cost of Sales 484,367 518,309 508,958 709,129
-------- -------- -------- --------
Gross Profit 132,309 187,259 195,959 248,597
Gross Margin 21.5% 26.5% 27.8% 26.0%
Operating Expenses 62,350 82,183 87,240 117,,311
Operating Income 69,959 105,076 108,719 131,286
Operating Margin 11.3% 14.9% 15.4% 13.7%
Income Taxes 31,072 44,975 46,505 55,983
-------- -------- -------- --------
Effective Tax Rate 44.4% 42.8% 42.8% 42.6%
After-Tax Operating Income $ 38,887 $ 60,101 $ 62,214 $ 75,303
After-Tax Operating Margin 6.3% 8.5% 8.8% 7.9%
CASH SOURCES:
After-Tax Operating Income $ 38,887 $ 60,101 $ 62,214 $ 75,303
Depreciation & Amortization 33,153 31,082 32,098 51,292
Deferred Income Taxes & Other Credits (1,467) (1,592) 6,042 25,292
-------- -------- -------- --------
TOTAL SOURCES $ 70,573 $ 89,591 $100,354 $151,887
======== ======== ======== ========
CASH USES:
Capital Expenditures $ 33,776 $ 95,000 $277,000 $127,492
Increase/(Decrease) in Net Working Capital 23,894 (3,344) (696) 36,715
-------- -------- -------- --------
TOTAL USES $ 57,670 $ 91,656 $276,304 $164,207
======== ======== ======== ========
FREE CASH FLOW $ 12,903 ($ 2,065) ($175,959) ($ 12,320)
=========================================================
PROJECTED YEARS ENDING MAY 31,
----------------------------------------
Projections Used in Valuation (Dollars in Thousands): 2001 2002 2003
---------- ----------- ----------
Sales $1,081,029 $1,155,406 $1,224,321
Percent Change 12.9% 6.9% 6.0%
Cost of Sales 784,322 813,939 839,330
---------- ----------- ----------
Gross Profit 296,706 341,467 384,991
Gross Margin 27.4% 29.6% 31.4%
Operating Expenses 123,120 124,245 123,958
Operating Income 173,586 217,222 261,033
Operating Margin 16.1% 18.8% 21.3%
Income Taxes 73,749 92,076 110,477
---------- ----------- ----------
Effective Tax Rate 42.5% 42.4% 42.3%
After-Tax Operating Income $ 99,837 $ 125,146 $ 150,556
After-Tax Operating Margin 9.2% 10.8% 12.3%
CASH SOURCES:
After-Tax Operating Income $ 99,837 $ 125,146 $ 150,556
Depreciation & Amortization 54,665 50,909 46,609
Deferred Income Taxes & Other Credits 22,269 28,270 17,936
---------- ----------- ----------
TOTAL SOURCES $ 176,771 $ 204,325 $ 215,101
========== ============ ==========
CASH USES:
Capital Expenditures $ 57,491 $ 40,000 $ 40,000
Increase/(Decrease) in Net Working Capital 14,983 5,982 6,020
---------- ----------- ----------
TOTAL USES $ 72,474 $ 45,982 $ 46,020
========== =========== ==========
FREE CASH FLOW $ 104,297 $ 158,343 $ 169,081
==========================================
10
PROJECT GIRDER
COST AND REVENUE ASSUMPTIONS
FORECAST FOR FISCAL YEARS 1998-2003
1998 1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------ ------------
TONS OF STEEL SOLD
Bar Products 493,000 450,000 480,000 525,000 525,000 525,000
Structural Products 1,231,400 1,250,000 1,320,000 1,350,000 1,350,000 1,350,000
Castelite 10,945 15,000 20,000 20,000 20,000 20,000
Star 2000 34,107 40,000 40,000 40,000 40,000 40,000
Structural Mill-East 0 0 500,000 700,000 850,000 1,000,000
Star 2000-East 0 0 12,000 16,000 20,000 24,000
------------ ------------ ------------ ------------ ------------ ------------
Total 1,769,452 1,755,000 2,372,000 2,651,000 2,805,000 2,959,000
NET SELLING PRICE
Bar Products 351.68 351.75 353.09 365.35 377.14 377.14
Structural Products 400.13 398.80 398.75 398.73 398.73 398.73
Castelite 850.00 850.00 850.00 850.00 850.00 850.00
Star 2000 884.49 884.49 884.49 884.49 884.49 884.49
Structual Mill-East 0.00 0.00 397.80 406.29 410.65 414.43
Star 2000-East 0.00 0.00 884.49 884.49 884.49 884.49
COST OF SALES
Bar Products 287.68 289.06 289.43 289.43 289.43 289.43
Structual Products 286.00 280.00 280.00 280.00 280.00 280.00
Castelite 806.00 715.00 715.00 715.00 715.00 715.00
Star 2000 453.90 453.90 453.90 453.90 453.90 453.90
Structural Mill-East 0.00 0.00 325.40 306.61 285.24 266.03
Star 2000-East 0.00 0.00 453.90 453.90 453.90 453.90
11
PROJECT GIRDER
WORKING CAPITAL ASSUMPTIONS
FORECAST FOR FISCAL YEARS 1998 - 2003
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
HISTORICAL PROJECTED YEARS ENDING MAY 31,
----------------- -------------------------------
1996 1997 1998 1999 2000
-------- -------- --------- --------- --------
BLANCE SHEET DATA
Current Assets less Cash and Equivalents
Accounts Receivable $ 49,530 $ 66,266 $ 69,845 $ 69,750 $ 94,737
Inventory 121,791 131,034 132,880 130,721 168,760
Prepaid Expenses 7,757 9,218 8,500 8,500 11,000
-------- -------- --------- --------- --------
179,078 206,518 211,225 208,971 274,497
Current Liabilities less Current Debt
Accounts Payable $ 34,131 $ 31,466 $ 37,419 $ 36,743 $ 56,100
Accrued Expenses 14,470 20,681 22,779 21,897 31,351
-------- -------- --------- --------- --------
48,601 52,147 60,198 58,640 87,451
Working Capital Less Cash and Equivalents and Current Debt $130,477 $154,371 $ 151,027 $ 150,331 $187,046
CHANGE IN NET WORKING CAPITAL $ 23,894 $ (3,344) $ (696) $ 36,715
Accounts Receivable as a % of Sales 10.7% 9.9% 9.9% 9.9%
Days Receivable 39.2 36.1 36.1 36.1
Inventory as a % of Cost of Goods Sold 27.1% 25.6% 25.7% 23.8%
Inventory Turns 3.7 3.9 3.9 4.2
Accounts Payable as a % of Cost of Goods Sold 6.5% 7.2% 7.2% 7.9%
Days Payable 23.7 26.4 26.4 289.9
PROJECTED YEARS ENDED MAY 31,
----------------------------------
2001 2002 2003
-------- -------- ----------
BLANCE SHEET DATA
Current Assets less Cash and Equivalents
Accounts Receivable $106,873 $114,159 $ 120,937
Inventory 183,300 189,007 193,874
Prepaid Expenses 11,000 11,000 11,000
-------- -------- ----------
301,173 314,166 325,811
Current Liabilities less Current Debt
Accounts Payable $ 63,097 66,099 68,673
Accrued Expenses 36,047 40,056 43,107
-------- -------- ----------
99,144 106,155 111,780
Working Capital Less Cash and Equivalents and Current Debt $202,029 $208,011 $ 214,031
CHANGE IN NET WORKING CAPITAL $ 14,983 $ 5,982 $ 6,020
Accounts Receivable as a % of Sales 9.9% 9.9% 9.9%
Days Receivable 36.1 36.1 36.1
Inventory as a % of Cost of Goods Sold 23.4% 23.2% 23.1%
Inventory Turns 4.3 4.3 4.3
Accounts Payable as a % of Cost of Goods Sold 8.0% 8.1% 8.2%
Days Payable 29.4 29.6 29.9
12
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
EBITDA MULTIPLE METHODOLOGY
FORECAST FOR FISCAL YEARS 1998 - 2003
(DOLLARS IN THOUSANDS)
SUMMARY
Discount Rate: 21.00%
Multiple: 5.5
EBITDA Terminal Value: $307,642
Present Value of Cash Flows: $ 34,741
Present Value of Terminal Value: $539,133
--------
Total Value: $573,875
========
Plus: Cash $ 14,291
Less: Debt $ 64,999
--------
Equity Value: $523,167
========
EQUITY VALUE PER SHARE: $ 18.43
<Caption
Discount Rate 19.00% 20.00% 21.00% 22.00% 23.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Present Value of Cash Flows: $ 44,609 $ 39,520 $ 34,741 $ 30,254 $ 26,040
Present Value of Terminal Value:
4.0 x $433,335 $412,115 $392,097 $373,204 $355,365
4.5 $487,502 $463,629 $441,109 $419,855 $399,786
5.0 $541,669 $515,143 $490,121 $466,505 $444,207
Multiple 5.5 $595,836 $566,658 $539,133 $513,156 $488,627
6.0 $650,003 $618,172 $588,145 $559,806 $533,048
6.5 $704,170 $669,686 $637,157 $606,457 $577,469
7.0 $758,336 $721,201 $686,170 $653,108 $621,889
Total Value:
4.0 x $477,944 $451,634 $426,838 $403,458 $381,405
4.5 $532,110 $503,149 $475,850 $450,109 $425,825
5.0 $586,277 $554,663 $524,862 $496,759 $470,246
Multiple 5.5 $640,444 $606,177 $573,875 $543,410 $514,667
6.0 $694,611 $657,692 $622,887 $590,060 $559,087
6.5 $748,778 $709,206 $671,899 $636,711 $603,508
7.0 $802,945 $760,720 $720,911 $683,362 $647,929
Equity Value:
4.0 x $427,236 $400,926 $376,130 $352,750 $330,697
4.5 $481,402 $452,441 $425,142 $399,401 $375,117
5.0 $535,569 $503,955 $474,154 $446,051 $419,538
Multiple 5.5 $589,736 $555,469 $523,167 $492,702 $463,959
6.0 $643,903 $606,984 $572,179 $539,352 $508,379
6.5 $698,070 $658,498 $621,191 $586,003 $552,800
7.0 $752,237 $710,012 $670,203 $632,654 $597,221
Equity Value Per Share:
4.0 x $ 15.05 $ 14.12 $ 13.25 $ 12.43 $ 11.65
4.5 $ 16.96 $ 15.94 $ 14.98 $ 14.07 $ 13.21
5.0 $ 18.87 $ 17.75 $ 16.70 $ 15.71 $ 14.78
Multiple 5.5 $ 20.78 $ 19.57 $ 18.43 $ 17.36 $ 16.34
6.0 $ 22.68 $ 21.38 $ 20.16 $ 19.00 $ 17.91
6.5 $ 24.59 $ 23.20 $ 21.88 $ 20.64 $ 19.47
7.0 $ 26.50 $ 25.01 $ 23.61 $ 22.29 $ 21.04
Implied Total Value/Fiscal 1997 EBITDA Multiple:
4.0 x 4.6 x 4.4 x 4.1 x 3.9 x 3.7 x
4.5 5.2 x 5.9 4.6 4.4 4.1
5.0 5.7 5.4 5.1 4.8 4.6
Multiple 5.5 6.2 5.9 5.6 5.3 5.0
6.0 6.7 6.4 6.0 5.7 5.4
6.5 7.3 6.9 6.5 6.2 5.9
7.0 7.8 7.4 7.0 6.6 6.3
13
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
SELECTED M&A TRANSACTION PREMIUMS FOR MINORITY INTEREST ACQUISITIONS IN GOING
PRIVATE TRANSACTIONS
1/1/92 - 6/18/97
VALUE OF PRICE
TRANSACTION PERCENT PER
DATE ACQUIROR TARGET TARGET BUSINESS DESCRIPTION ($MM) SOUGHT SHARE
- -------- ------------- ------ --------------------------- ------- ------ -------
06/25/92 Katy Holdings Katy Industries, INc. Mnfr industrial machinery 190.047 48.1% 25.75
07/29/92 Investor Group Fretter Inc Home appliances, electronics 102.182 24.0% 4.00
01/04/93 Investor Group United Medical Corp Whl medical supplies 19.473 48.0% 9.50
02/19/93 National Mutual Insurance Co. Celina Financial Corp Insurance Agents 7.482 44.4% 5.80
08/12/93 REMEC Inc Humphrey Inc Mnfr precision instruments 10.302 48.5% 6.00
04/28/94 Investor Group Enquirer/Star Group Inc Publish tabloid newspapers 1067.888 43.0% 17.50
09/13/94 Investor Group LDB Corp Mnfr mobile homes; whl carpets 17.766 31.0% 7.50
11/15/94 Freeman Spogli & Co Koll Management Services(Koll) Real estate management svcs 109.062 48.0% 33.20
03/15/95 LinPac Mouldings Ltd Ropak Corp Manufacture plastic containers 79.638 45.2% 11.00
05/19/95 BIC SA Bic Corp (BIC SA) Mnfr writing instruments 906.058 22.0% 40.50
08/25/95 Berkshire Hathaway Inc. GEICO Corp. Insurance and financial svcs 5441.824 47.6% 70.00
08/30/95 Investor Group Syms Corp Own, op men's clothing store 160.687 22.0% 8.75
09/26/95 SCOR SCOR US Corp (SCOR SA) Reinsurance holding company 386.745 20.0% 15.25
11/06/95 Investor Group NPC International Inc Own and operate restaurants 298.189 38.0% 9.00
03/29/96 Equity Holdings Ltd Great American Mgmt & Invt Inc Invt advice and financial svcs 746.409 12.1% 50.00
05/27/96 Novartis AG SyStemix Inc (Sandoz AG) Mnfr, dvlp cellular processes 401.596 26.3% 19.50
06/21/96 Seaboard Acquisition Partners Seaboard Oil Co Oil and gas exploration, prodn 10.769 29.0% 9.75
10/03/96 Electromagnetic Sciences LXE Radio control devices 13.500 28.0% 13.13
10/10/96 Renco Group Inc WCI Steel Inc(Renco Group Inc) Manufacture steel 437.182 15.5% 10.00
11/20/96 Andrews Group Inc Toy Biz Inc Mnfr games and toys 452.237 33.0% 22.50
11/27/96 JW Childs Equity Partners LP Central Tractor Farm & Country Own, op tractor, hardware stores 169.606 34.6% 14.25
01/21/97 Mafco Holdings Inc Mafco Consolidated Grp(Mafco) Mnfr cosmetics, beauty products 980.318 15.0% 33.50
Pending Gold Kist Golden Poultry Company Poultry Processing 230.600 25.5% 14.25
AVERAGE 32.6%
MEDIAN 31.0%
PREMIUM PREMIUM
1 DAY 1 WEEK
PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT
DATE ACQUIROR TARGET TARGET BUSINESS DESCRIPTION DATE DATE
- -------- ------------- ------ --------------------------- ------------ -----------
06/25/92 Katy Holdings Katy Industries, INc. Mnfr industrial machinery 53.7% 51.5%
07/29/92 Investor Group Fretter Inc Home appliances, electronics 77.8 100.0
01/04/93 Investor Group United Medical Corp Whl medical supplies 49.0 52.0
02/19/93 National Mutual Insurance Co. Celina Financial Corp Insurance Agents 16.0 36.5
08/12/93 REMEC Inc Humphrey Inc Mnfr precision instruments 18.5 14.3
04/28/94 Investor Group Enquirer/Star Group Inc Publish tabloid newspapers 20.7 20.7
09/13/94 Investor Group LDB Corp Mnfr mobile homes; whl carpets 42.9 42.9
11/15/94 Freeman Spogli & Co Koll Management Services(Koll) Real estate management svcs 107.5 107.5
03/15/95 LinPac Mouldings Ltd Ropak Corp Manufacture plastic containers 4.8 6.0
05/19/95 BIC SA Bic Corp (BIC SA) Mnfr writing instruments 13.3 12.5
08/25/95 Berkshire Hathaway Inc. GEICO Corp. Insurance and financial svcs 25.6 23.1
08/30/95 Investor Group Syms Corp Own, op men's clothing store 11.1 9.4
09/26/95 SCOR SCOR US Corp (SCOR SA) Reinsurance holding company 37.1 35.6
11/06/95 Investor Group NPC International Inc Own and operate restaurants 44.0 44.0
03/29/96 Equity Holdings Ltd Great American Mgmt & Invt Inc Invt advice and financial svcs 2.6 4.2
05/27/96 Novartis AG SyStemix Inc (Sandoz AG) Mnfr, dvlp cellular processes 4.7 69.6
06/21/96 Seaboard Acquisition Partners Seaboard Oil Co Oil and gas exploration, prodn 11.4 11.4
10/03/96 Electromagnetic Sciences LXE Radio control devices 22.1 14.1
10/10/96 Renco Group Inc WCI Steel Inc(Renco Group Inc) Manufacture steel 17.6 29.0
11/20/96 Andrews Group Inc Toy Biz Inc Mnfr games and toys 29.5 25.9
11/27/96 JW Childs Equity Partners LP Central Tractor Farm & Country Own, op tractor, hardware stores 17.5 17.5
01/21/97 Mafco Holdings Inc Mafco Consolidated Grp(Mafco) Mnfr cosmetics, beauty products 23.5 23.5
Pending Gold Kist Golden Poultry Company Poultry Processing 28.1 31.0
AVERAGE 29.5 34.0
MEDIAN 22.1 25.9
PREMIUM
4 WEEKS
PRIOR TO
ANNOUNCEMENT
DATE ACQUIROR TARGET TARGET BUSINESS DESCRIPTION DATE
- -------- ------------- ------ --------------------------- ------------
06/25/92 Katy Holdings Katy Industries, INc. Mnfr industrial machinery 46.1%
07/29/92 Investor Group Fretter Inc Home appliances, electronics 52.4
01/04/93 Investor Group United Medical Corp Whl medical supplies 49.0
02/19/93 National Mutual Insurance Co. Celina Financial Corp Insurance Agents 36.5
08/12/93 REMEC Inc Humphrey Inc Mnfr precision instruments 45.5
04/28/94 Investor Group Enquirer/Star Group Inc Publish tabloid newspapers 7.7
09/13/94 Investor Group LDB Corp Mnfr mobile homes; whl carpets 42.9
11/15/94 Freeman Spogli & Co Koll Management Services(Koll) Real estate management svcs 114.2
03/15/95 LinPac Mouldings Ltd Ropak Corp Manufacture plastic containers 4.8
05/19/95 BIC SA Bic Corp (BIC SA) Mnfr writing instruments 28.6
08/25/95 Berkshire Hathaway Inc. GEICO Corp. Insurance and financial svcs 25.3
08/30/95 Investor Group Syms Corp Own, op men's clothing store 25.0
09/26/95 SCOR SCOR US Corp (SCOR SA) Reinsurance holding company 38.6
11/06/95 Investor Group NPC International Inc Own and operate restaurants 33.3
03/29/96 Equity Holdings Ltd Great American Mgmt & Invt Inc Invt advice and financial svcs 3.6
05/27/96 Novartis AG SyStemix Inc (Sandoz AG) Mnfr, dvlp cellular processes 59.2
06/21/96 Seaboard Acquisition Partners Seaboard Oil Co Oil and gas exploration, prodn 39.3
10/03/96 Electromagnetic Sciences LXE Radio control devices 19.3
10/10/96 Renco Group Inc WCI Steel Inc(Renco Group Inc) Manufacture steel 77.8
11/20/96 Andrews Group Inc Toy Biz Inc Mnfr games and toys 20.0
11/27/96 JW Childs Equity Partners LP Central Tractor Farm & Country Own, op tractor, hardware stores 18.8
01/21/97 Mafco Holdings Inc Mafco Consolidated Grp(Mafco) Mnfr cosmetics, beauty products 27.6
Pending Gold Kist Golden Poultry Company Poultry Processing 29.5
AVERAGE 36.7%
MEDIAN 33.3%
Source: Securities Data Company, Inc.
14
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
IMPLIED VALUATION ANALYSIS UTILIZING SELECTED PREMIUMS FROM
MINORITY INTEREST/GOING PRIVATE TRANSACTIONS
(DOLLARS IN THOUSANDS)
AVERAGE PREMIUM
-----------------------------------------------------
GIRDER IMPORTANCE 1 DAY PRIOR 1 WEEK PRIOR 4 WEEKS PRIOR
VALUATION PARAMETER [1] VALUE WEIGHTING TO ANNOUNCEMENT TO ANNOUNCEMENT TO ANNOUNCEMENT
- --------------------------------------------- ---------- -------------- --------------- -------------- ---------------
Stock Price 1 Day Prior to Announcement $12.88 35.0% 29.5 %
Stock Price 1 Week Prior to Announcement 12.38 35.0% 34.0%
Stock Price 4 Weeks Prior to Announcement 11.63 30.0% 36.7%
Implied
Equity
Implied Value
Equity Per
VALUATION PARAMETER [1] Value Share [1]
- --------------------------------------------- ----------- ------------
Stock Price 1 Day Prior to Announcement $473,656 $16.68
Stock Price 1 Week Prior to Announcement 471,040 16.58
Stock Price 4 Weeks Prior to Announcement 451,510 15.90
Weighted Average: $466,097 $16.41
Unweighted Average: $465,402 $16.39
=============================================================
- ---------------------------
* Excluded from the unweighted average.
[1] Announcement of merger discussions occurred on 5/22/97.
15
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
ADJUSTED BOOK VALUE ANALYSIS
- -------------------------------------------------------------------------------
INPUTS
5/31/97 Tangible Book Value [1] $267,779 5/31/97 Shares 28,404
5/31/97 Accumulated $308,539
Depreciation
============================================================================================================
Percent of Accumulated Depreciation Added Back
-----------------------------------------------------------------------------
75.0% 80.0% 85.0% 90.0% 95.0% 100.0%
=============================================================================
Tangible Book Value [1] $267,779 $267,779 $267,779 $267,779 $267,779 $267,779
Depreciation Add-Back 231,269 246,687 262,105 277,523 292,941 308,359
-----------------------------------------------------------------------------
Adjusted Book Value $499,048 $514,466 $529,884 $545,302 $560,720 $576,138
=============================================================================
Adjusted B.V. per Share $ 17.57 $ 18.11 $ 18.66 $ 19.20 $ 19.74 $ 20.28
=============================================================================
- --------------------------------------
[1] Excludes goodwill, commissioning costs and other assets of $58.5 million.
16
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
VALUATION ANALYSIS USING ANNUAL TONS CAPACITY
- -------------------------------------------------------------------------------
(Dollars in Millions)
NEW STEEL PLANT CONSTRUCTIONS
- ----------------------------- Tons/Yr. $/
$MM 000s Ton
------- ----------- --------
Steel Dynamics-Butler, Indianan $290.0 1,400 $207.14
IPSCO-Muscatine, Iowa $360.0 1,300 $276.92
Nucor Berkeley $525.0 1,800 $291.67
Gallatin Steel $410.0 1,200 $341.67
CHAPARRAL-STRUCTURAL MILL EAST $390.0 1,000 $390.00
--------
AVERAGE $301.48
=========================================
IMPLIED VALUATION USING AVERAGE $MM/TON
Girder
Tons/Yr. $/ . Firm Net Equity Per
000s x Ton = Value - Debt = Value or Share
1,605 $301.48 $483,831 $50,708 $433,123 $15.25
=========================================================================================================
17
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
DILUTION ANALYSIS BASED ON LTM FINANCIALS
- --------------------------------------------------------------------------
(Dollars in Millions)
ASSUMPTIONS
Purchase Price per Share $ 15.00
Girder Shares Not Already Owned By Star 4,404
Equity Purchase Price $ 66,056
Pro Rata Book Value $ 50,583
Asset Write-Up Adjustment 0.0%
Adjusted Pro Rata Book Value $ 50,583
Goodwill Created $ 15,472
==========================================================================
Star LTM Net Income $ 73,280
==========================================================================
Star LTM Pretax Income $120,885
Plus: Eliminate LTM Girder Minority Int. 7,831
Public Company Expense Savings 500
--------
8,331
Less: Incremental Interest Expense on Borrowed Funds @ 7.5% 4,954
--------
Pro Forma Pretax Income Before Goodwill Amortization 124,262
Tax Effect @ 39.4% (LTM Effective Tax Rate) 48,935
--------
Pro Forma Net Income Before Goodwill Amortization 75,327
Non-Deductible Goodwill Amortization (15 Years) 1,031
--------
Pro Forma Net Income $ 74,296
========
ACCRETION/DILUTION 1.4%
==================================================
SENSITIVITY TABLE
- -----------------
PURCHASE PRICE
----------------------------------------------
$15.00 $16.00 $17.00 $18.00 $19.00
------------------------------------------------------
0.0% 1.4% 0.7% 0.0% (0.6%) (1.3%)
ASSET 20.0% 2.3% 1.6% 1.0% 0.3% (0.4%)
WRITE-UP 40.0% 3.2% 2.6% 1.9% 1.2% 0.5%
ADJUSTMENT 60.0% 4.1% 3.5% 2.8% 2.1% 1.5%
80.0% 5.1% 4.4% 3.7% 3.0% 2.4%
100.0% 6.0% 5.3% 4.6% 4.0% 3.3%
------------------------------------------------------
18
PROJECT GIRDER
Analysis of Projected Earnings
- --------------------------------------------------------------------------------
Present Equity
Projected Assumed 2003 Value Value
Probability 2003 P/E Equity Discounted per
Weighting Earnings Multiple Value @ 20% Share
----------- ---------- ---------- ------------ ----------- --------
Case 1 25.0% $134,441 11.0 X $1,478,851 $495,264 $17.44
Case 2 25.0% 93,355 11.0 1,026,905 343,908 12.11
Case 3 25.0% 171,056 11.0 1,881,616 630,149 22.19
Case 4 25.0% 58,782 11.0 646,602 216,546 7.62
------- ------
WEIGHTED AVERAGE $421,467 $14.84
=========================================================
19
The Robinson-Humphrey Company, Inc.
PROJECT GIRDER
RETURN ANALYSIS BASED ON INITIAL PURCHASE AT IPO
- -------------------------------------------------------------------------------
(Dollars in Thousands)
IPO Price 7/88 $15.00
=============================
Annual Compounded Rate of Return
----------------------------------------------------
1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
----------------------------------------------------
Implied 7/97 Price $16.41 $17.03 $19.57 $21.35 $23.27 $25.34
----------------------------------------------------