(Adds analyst comments in paragraphs 3-8)
By Guillermo Parra-Bernal and Paula Arend Laier
SAO PAULO, July 14 (Reuters) - Shares of Brazil's Gerdau SA plunged the most in almost four months on Tuesday after the Americas' largest steelmaking group announced plans to spend 1.986 billion reais ($633 million) buying out four units as part of a broad reorganization program.
Under the plan, Gerdau will buy the remaining stakes it does not yet own in Gerdau Aços Longos SA, Gerdau Açominas SA, Gerdau Aços Especiais SA and Gerdau América Latina Participações SA. South American operations will be merged into a single unit, with the Brazilian unit absorbing Gerdau's iron ore business.
While the move underpins efforts by Chief Executive Officer André Gerdau-Johannpeter to mitigate the impact of Brazil's worst economic downturn in 25 years on earnings and output, investors lashed out at the price being paid for the remaining stakes, which range between 4 percent and 5 percent, amid plunging sales and rising unwanted inventory.
This is "an expensive transaction from basically every angle, and the timing was unfortunate," said Leonardo Correa, a senior mining and steel analyst with Banco BTG Pactual SA. He cut his price target on Gerdau to 9 reais from 12.50 reais on the news.
Preferred shares of Gerdau, the company's most widely traded class of stock, sank as much as 7.4 percent to 6.51 reais, nearing their lowest level in 10 years. Metalúrgica Gerdau SA, the investment holding company that controls Gerdau, shed as much as 11 percent.
Gerdau will disburse 339 million reais in cash for the stakes, with the remainder being paid with 206 million reais worth of stock, 802 million reais worth of shares in an asset-backed security fund and 639 million reais in additional, annual installments between 2016 and 2022.
The reorganization is "part of necessary actions to adapt Gerdau to a current scenario demanding more competitiveness," the filing quoted Chief Financial Officer Andre Pires as saying. The company will formally present the new structure in its third-quarter earnings report.
A sales trading desk note by Bradesco BBI suggested that the buyout of the four units might have been planned as a way to reverse prior steps in which Gerdau sought to create tax-deductible goodwill. Some of those actions are currently being contested by tax authorities.
Efforts to contact Gerdau to explain the move were unsuccessful, the Bradesco BBI note added.
Under the reorganization plan, mills in Mexico and the Caribbean will also be gobbled up by Gerdau's increasingly relevant North America unit, which is starting to reap the benefits of a recovering economy in the United States, the filing added.
$1 = 3.1365 Brazilian reais Reporting by Guillermo Parra-Bernal; Editing by Meredith Mazzilli and Lisa Shumaker