Cleveland-Cliffs to buy AK Steel for $1.1 billion in stock

Cleveland-Cliffs to buy AK Steel for $1.1 billion in stock
Cleveland-Cliffs will merge with Butler County-based AK Steel, both companies announced Tuesday. (Source: Logos provided by the companies)

WEST CHESTER TWP., Ohio (FOX19) - Cleveland-Cliffs Inc. and Butler-County based AK Steel Holding Corporation announced Tuesday morning Cleveland-Cliffs will buy AK Steel for $1.1 billion in stock.

Cleveland-Cliffs will acquire all of the issued and outstanding shares of AK Steel common stock.

Lourenco Goncalves, Cliffs’ chairman of the board, president and CEO, will lead the organization, according to a news release on AK Steel’s website.

“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,” Gonclaves said in the prepared statement.

"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.”

Roger K. Newport, CEO of AK Steel, added, “We believe this transaction is a compelling opportunity for AK Steel shareholders to participate in the substantial upside potential of what will be a premier vertically integrated producer of value-added iron ore and steel products with significant scale and diversification.

"Our shareholders will benefit from exposure to a larger, more diversified company that is better positioned to capitalize on growth opportunities. The combination of Cliffs’ iron ore pellet capabilities and our innovative, high-quality steel product development and production is strategically compelling. Together, we expect to be able to take advantage of growth opportunities faster and more fully than either company could on its own. With AK Steel’s 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will facilitate a smooth integration process.”

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, AK Steel said in a news release.

Upon completion of the transaction, Cliffs shareholders will own approximately 68% and AK Steel shareholders will own approximately 32% of the combined company, the release states.

The fixed exchange ratio implies a consideration of $3.36 per share of AK Steel common stock and represents a premium of 16% based on the closing share prices of Cliffs and AK Steel common shares, respectively, as of Monday, and a premium of 27% based on the 30-day volume weighted average price of AK Steel common shares.

The transaction implies an aggregate consideration to AK Steel shareholders of approximately $1.1 billion on a fully diluted basis, a total enterprise value of approximately $3.0 billion for AK Steel and an acquisition multiple of 5.6x LTM Adjusted EBITDA.

The transaction will combine Cliffs, North America’s largest producer of iron ore pellets, with AK Steel, a leading producer of innovative flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and steel products. The combined company will be ideally positioned to provide high-value iron ore and steel solutions to customers primarily across North America.

Key Strategic & Financial Benefits of the merger, according to the companies:

  • Brings together complementary businesses to create company with full suite of value-added products
  • Solidifies demand for Cliffs’ pellet offtake, with potential for growth into merchant pig iron
  • Accretion through significant annual synergies
  • Stronger company with compelling pro forma financial metrics

Following completion of the transaction, Newport will retire.

Three existing members of AK Steel’s board of directors will join the Cliffs board, and two existing Cliffs board members will step down, bringing the Cliffs board to 12 members in total.

AK Steel will become a direct, wholly-owned subsidiary of Cliffs and will retain its branding and corporate identity.

Cliffs will continue to be listed on the NYSE with its headquarters in Cleveland, while maintaining a significant presence at AK Steel’s current offices in West Chester, Ohio along with its Research and Innovation Center in Middletown.

The transaction is expected to close in the first half of 2020, subject to approval by the shareholders of both companies, receipt of regulatory approvals and satisfaction of other customary closing conditions.

Cliffs has obtained an approximately $2 billion financing commitment from Credit Suisse in connection with a new Asset Backed Loan and the refinancing of AK Steel’s 2023 senior secured notes.

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