Armco cancels agreement to buy Cyclops Steel fabricator unable to raise cash for deal


Armco Inc. couldn't raise all the cash it needed to buy the owner of the Eastern Stainless Steel plant on Rolling Mill Road and has broken off its agreement to purchase Cyclops Industries Inc., the companies announced yesterday.

Armco, which owns a money-losing stainless steel rod-making plant on East Biddle Street, said it was disappointed and hoped to figure out some other way to merge the two specialty steel companies.

But an official at Pittsburgh-based Cyclops said the two companies were no longer talking.

Both of the companies' stock prices fell after the announcement, but Cyclops' stock plunged dramatically, losing $5.125 and closing at $13.875.

Ed Romanoff, a spokesman for Cyclops, said his company was disappointed that Armco's $22-a-share bid for control of his company had fallen through.

The problem, he said, was that Armco's plan to raise $100 million by selling preferred stock to the Alleghany Corp. broke down. And without Alleghany's cash, Armco couldn't raise the $156 million the Cyclops purchase would require, he said.

New York-based Alleghany Corp. is a financial services company and a substantial stockholder in Cyclops Industries.

While Mr. Romanoff said no other corporate suitors for Cyclops had emerged since the Jan. 16 announcement of the Armco deal, he said Cyclops is "aggressively pursuing enhancing our stainless steel and fabricating businesses."

Armco spokesman Lee Bland said he did not yet know what effect the decision to abandon the takeover attempt would have on Armco's troubled Baltimore Specialty Steels Corp.

Late last year, Parsippany, N.J.-based Armco had announced it would sell the 900-worker stainless steel rod plant, but a few weeks later said the sale would be put on hold while the company focused on the Cyclops deal.

Steel industry analysts contacted yesterdaysaid they were surprised by the breakdown, since the merger of the two stainless steel makers seemed to be a good idea. But some had warned last month that Armco was paying too high a price for Cyclops.

"I'm surprised," said Christopher Plummer, a steel industry analyst for the WEFA group in Bala-Cynwyd, Penn. "They would have had a really full line to sell to the auto industry," he said.

Rick Stephan, a steel industry analyst for Moody's Investor Research in New York, had warned last month that though the idea made some sense, Armco's timing and valuation were questionable.

Armco had offered to pay $9.75 a share more than Cyclops stock was trading at before the January announcement -- a premium Armco could ill afford, Mr. Stephan said, noting that the company was suffering red ink and poor sales during the recession.

Armco's stock fell 62.5 cents to finish the day at $5.375 yesterday in trading on the New York Stock Exchange.

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