Cleveland-Cliffs To Buy AK Steel In $1.1B All-Stock Deal
Zacks Investment Research | Dec 03, 2019 09:14PM ET
Cleveland-Cliffs Inc. (NYSE:CLF) has announced that it has entered into a definitive merger agreement with AK Steel Holding Corporation to acquire all of the issued and outstanding shares of AK Steel common stock.
Per the terms of deal, shareholders of AK Steel will get 0.40 shares of Cleveland-Cliffs common stock for every outstanding AK Steel common stock they own. The fixed exchange ratio in the transactions marks a premium of 16% on the basis of the closing share prices of the companies as of Dec 2, 2019. AK Steel’s shareholders are expected to receive a total consideration of around $1.1 billion from the transaction on a fully-diluted basis, or a total enterprise value of around $3 billion for AK Steel.
Shares of Cleveland-Cliffs fell 10.7% to close at $7.51 while AK Steel’s shares rose 4.2% to close at $3.01 yesterday.
Post completion of the transaction, Cleveland-Cliffs will own around 68% of the combined company on a fully-diluted basis, while AK Steel shareholders will own roughly 32%. The transaction is expected to close in first-half 2020, which is subject to the shareholders’ approval of the companies as well as receipt of regulatory approvals and other customary closing conditions.
Notably, the deal combines North America’s largest iron ore pellets producer and a leading producer of innovative flat-rolled carbon, stainless and electrical steel products to form a vertically-integrated producer of value-added iron ore as well as steel products. The combined entity will be well positioned to offer high-value iron ore and steel solutions, mainly across North America.
The deal will enable Cleveland-Cliffs to become a vertically-integrated steel company that is expected to boost profitability. The combined company will be well-positioned to cater to the blast furnace and electric arc furnace segments.
Rationale of the Deal
The deal combines the complementary business of the parties through which they will be able to offer a full range of value-added products. Cleveland-Cliffs and AK Steel will have presence across the complete manufacturing process starting from mining to pelletizing to the development and production of high-value finished steel products. This includes Next Generation Advanced High Strength Steels for the automotive and other markets.
Moreover, the deal will ensure pellet volume commitments to AK Steel’s blast furnaces as well as Cleveland-Cliffs’ Toledo hot briquetted iron (HBI) facility. This will complement Cleveland-Cliffs’ existing long-term agreements with other key integrated steel producers for minimum volume pellet offtake. Additionally, the potential startup of pig iron producing at AK Steel’s facility in Ashland, KY, will create future opportunities for pellet demand along with other metallics products without substantial additional capital expenditures.
Get The News You Want
The transaction is expected to offer considerable operational synergies, which will boost long-term value for investors. It is projected to generate around $120 million of annual cost synergies that will be fully realized within the first 12 months post deal closure. This is likely to come from consolidation of corporate functions, procurement and energy cost savings, reduction of duplicate overhead costs as well as operational and supply chain efficiencies.
Also, the combined company will benefit from a large and more diverse customer base with less emphasis on commodity-linked contracts.
Cleveland-Cliffs’ shares have lost 17.8% in the past year against the Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.