Japanese steel giant Sumitomo Corporation (SSUMF) announced a merger agreement today to purchase Edgen Group (EDG) , a distributor of specialty products for the energy sector. Sumitomo will pay $12 a share, a 58 percent premium on Edgen’s closing price yesterday, for the company in a deal that should reach $1.2 billion in value once debt is factored in.

Opportunity for Sumitomo to improve presence in energy sector

Sumitomo’s interest in Edgen, whose stock had been flagging, lies in a chance to improve their distribution and presence in oil and gas markets.

“The investment in Edgen Group will represent further expansion of Sumitomo’s distribution presence across the upstream, midstream, and downstream oil and gas markets, and other related energy and infrastructure segments and will complement Sumitomo’s integrated supply solutions to the growing energy market,” said Sumitomo’s Kazuhiro Takeuchi.

“With the acquisition of Edgen Group, we gain a global distribution platform, including experienced staff, facilities, and an expanded specialized steel product offering that will allow us to continue our growth and support the development of global energy infrastructure. As a leader in the supply of steel products, we continue to build a robust value chain from manufacturing through distribution and related services, to support our customer’s requirements.”

Edgen shareholders bailed out

Edgen Group had failed to produce sterling returns in its two short years of existence. Incorporated in 2011, the Baton Rouge, LA-based company had lost 20 percent of its value since going public in April of last year.

"The opportunity to align the Edgen Group strategy with the Sumitomo organization will benefit both businesses. The Edgen Murray and Bourland & Leverich commercial brands are well established and can now bring even greater scale to serve customers throughout global energy end-markets,” said President and CEO of Edgen Dan O’Leary, who will remain the lead for Edgen’s strategic growth initiatives. “Our focus on highly engineered and mission critical steel products and our extensive industry knowledge and expertise in increasingly complex applications used in oil and gas drilling, extraction, production and processing complement Sumitomo’s existing business.”