Cleveland-Cliffs to buy AK steel in $1.1 billion stock deal

December 3, 2019

Cleveland-Cliffs Inc. announced that it will buy AK Steel in a stock deal valued at about $1.1 billion.

The companies say the tie-up will create a vertically integrated company that pairs Cleveland-Cliffs’ iron ore pellet production with AK Steel’s rolled and stainless steel operations.

Under the terms of the merger agreement, AK Steel shareholders will receive 0.40 shares of Cliffs’ common stock for each outstanding share of AK Steel common stock they own. Upon completion of the transaction, Cliffs’ shareholders will own approximately 68 percent and AK Steel shareholders will own approximately 32 percent of the combined company, respectively, on a fully diluted basis.

Cleveland-Cliffs is the largest producer of iron ore pellets in North America.

“We are excited to be able to deliver real value to the shareholders of both Cliffs and AK Steel through a value-enhancing and leverage-neutral transaction,” said Lourenco Goncalves, chairman of the board, president and chief executive officer of Cliffs, who will lead the expanded organization. “By combining the best-in-class quality of AK Steel’s assets and its enviable product mix with Cliffs’ debt profile and proven management team, we are creating a premier North American company, self-sufficient in iron ore pellets and geared toward high value-added steel products.”

The deal was announced one day after President Trump said he would restore tariffs on steel and aluminum imports from Brazil and Argentina.

The Associated Press reported that after a brief spike in prices, U.S. steel producers have struggled since the Trump administration put a 25 percent steel tariff into place last year. Domestic demand has slumped as oil and gas drillers pull back on purchases of steel pipe, with prices for natural gas tumbling 45 percent over the past 12 months.

U.S. steel in its last quarter reported its first loss since early 2017, and the division that makes pipes for energy companies lost $25 million. It has laid off workers and shut down some of its blast furnaces.

The price for hot rolled steel has slid almost 30 percent this year, and the stock of steel producers have fallen in tandem.

The steel industry added just 1,800 jobs since February 2018, the month before the tariffs took effect, and it employs 10,000 fewer people than they did five years ago.

AK Steel will become a subsidiary of Cliffs and keep its branding and corporate identity. Cliffs will remain listed on the New York Stock Exchange. Its headquarters will stay in Cleveland, OH, while maintaining a significant presence at AK Steel’s current offices in West Chester, OH, along with its research and innovation center in Middletown, OH.

The deal is expected to close in the first half of next year.



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