AK Steel Takeover Rumors Persist

AK Steel Holding Corporation (NYSE: AKS) shares jumped higher Monday on renewed takeover chatter. The steel company has fallen sharply over the past few months to what Deutsche Bank calls “washed out” levels. With a price-earnings multiple of just 2.5x and a yield of 1.66%, many investors believe it could become a takeover target despite denials from potential suitors. Meanwhile, implied volatility in the stock’s options suggest a bet on large price movement in the future.

One potential suitor was German conglomorate ThyssenKrupp AG, which denied it was considering any offer Monday. The market had speculated that Germany’s largest steelmaker would make an offer for AK Steel at its low levels. The speculation even prompted a decline in ThyssenKrupp’s stock, which dropped 5.1% in the European session. This compares to AK Steel’s shares, which are trading higher by roughly the same amount in mid-day trading on the New York exchange.

AK Steel’s sharp drop can be traced back to a weak steel environment. Third quarter earnings for the firm jumped 74% as higherp rices for metals overcame weaker demand from the automotive and construction markets. However, the company cautioned that it sees reduced shipments in the fourth quarter and lower prices for steel amid lower demand. The company now sees deliveries of 1.4 million tons for an average selling price about 10% lower than third quarter levels.

AK Steel Holding Corporation is a producer of flat-rolled carbon, stainless and electrical steels and tubular products through its wholly owned subsidiary, AK Steel Corporation. The Company’s operations consist of seven steelmaking and finishing plants located in Indiana, Kentucky, Ohio and Pennsylvania that produce flat-rolled carbon steels, including coated, cold-rolled and hot-rolled products, and specialty stainless and electrical steels that are sold in slab, hot band, and sheet and strip form.

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