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KeyBanc notes that Worthington Steel announced it has entered into a Business Combination Agreement to acquire Kloeckner, in what the firm views as a "highly transformative" deal. While KeyBanc is still in the process of refining its estimates, it is possible that Worthington Steel will outline combined EPS power of about $5/share within two to three years. Assuming net leverage about 2.5-times by the end of FY28, Worthington Steel would be trading at 5.0-5.5 times aspirational EBITDA. This would equate to potential for shares to reach/exceed $60, or more than 50% upside, with time if execution successfully unfolds and macro conditions cooperate, the firm argues. KeyBanc has an Overweight rating on Worthington Steel.

Worthington Steel has entered into a business combination agreement with Kloeckner & Co. Listed in Germany, Kloeckner & Co is a service center and metal processing company with approximately 110 locations across North America and Europe. Its product capabilities include carbon flat-roll steel, electrical steel, aluminum, stainless steel and long products. Once completed, the transaction will position Worthington Steel as the second largest steel service center company in North America by revenue. Worthington Steel has identified approximately $150M in anticipated annual cost, operational, and commercial process synergies primarily in North America. Synergies are expected to be fully realized by the end of Worthington Steel's FY28. The transaction is expected to triple Worthington Steel's scale in terms of sales representing approximately $9.5B of combined revenue while maintaining margins above 7%, including synergies. The offer price implies an enterprise value of $2.4B and represents EV / EBITDA multiples1 of approximately 8.5x and 5.5x considering anticipated run-rate synergies of $150M. The acquisition is expected to be substantially accretive to Worthington Steel's EPS within the first full year of operation. Worthington Steel GmbH, the subsidiary established for the acquisition, intends to launch a voluntary public offer to acquire all outstanding shares of Kloeckner & Co. Kloeckner shareholders who choose to participate in the offer will receive EUR11 in cash for each Kloeckner & Co share tendered into the offer. Kloeckner's Management intend to recommend acceptance by Kloeckner's shareholders. The Management Board and executive leadership are expected to remain in place following completion of the transaction. Kloeckner's largest shareholder, owning approximately 42% of shares, has committed to tender their shares in support of Worthington Steel's offer. Completion of the offer will be subject to a minimum acceptance threshold of 65% of Kloeckner's issued share capital. Completion of the offer is expected to occur in the second half of calendar year 2026. Worthington Steel expects to finance the transaction via a combination of cash on hand and new debt financing. The offer will be fully financed via underwritten commitments and is not subject to any financing conditions. At closing, Worthington Steel anticipates pro forma net leverage to be in the ~4.0x range including synergies. Worthington Steel's goal is to reach net leverage levels below 2.5x within 24 months after closing.