The world’s largest steel producer ArcelorMittal (AMS: MT), has announced that the Ohio-based Cleveland-Cliffs Inc. (NYSE: CLF) is acquiring its US subsidiary, ArcelorMittal USA LLC, for roughly $1.40 billion and the share buyback program would begin soon. The steel industry, after nearly a decade of calmness, is undergoing a big stir up along the heavily industrialized southern coastline of Lake Michigan.
Under the agreement, the Ohio-based Cleveland-Cliffs, formerly known as Cliffs Natural Resources, will acquire eight finishing factories, six steel mills, two iron ore mining and pelletizing facilities, and three coal and coke producing units from ArcelorMittal.
Specifically, the takeover agreement includes the following steel mills of ArcelorMittal:
- ArcelorMittal Indiana Harbor in East Chicago
- ArcelorMittal Burns Harbor in Porter County,
- ArcelorMittal Riverdale in Illinois
- The Gary Plate finishing facility
Additionally, the deal also includes ArcelorMittal USA’s stake in I/N Tek JV and I/N Kote JV in New Carlisle. Both industries are owned in partnership with Japan’s Nippon Steel.
The Luxembourg-headquartered ArcelorMittal revealed that one-third of the agreed value would be paid in the form of upfront cash, while the rest in the form of equity. Precisely, the deal will include $505 million in cash, $373 million in stock (without voting rights), and 78.2 million shares of Cleveland-Cliffs’ common stock.
Furthermore, the iron ore mining and pelletization company will assume ArcelorMittal USA’s debt of “approximately $500 million and pensions and other post-employment benefit liabilities valued at $1.5 billion.”
The aggregate enterprise value of the takeover deal, including debt and market capitalization, is assessed to be roughly $3.3 billion. Interestingly, Cleveland-Cliffs recently acquired AK Steel for $1.10 billion.
With mines in Michigan and Minnesota, Cleveland-Cliffs supplies ore to steel mills in the Great Lakes region. The company is also North America’s largest iron ore pellet producer with a capacity of 28 million long tons.
In Northern Indiana, ArcelorMittal USA employs roughly 10,000 workers. Overall, the Chicago-headquartered steel subsidiary has over 18,000 people in its payrolls, spread across 15 states (12 has industrial operations).
The deal will improve ArcelorMittal’s capital structure and risk profile while trimming its net debt.
ArcelorMittal, which recorded revenue of $10.40 billion over the past two years, has stated that it would play a part in the future value creation of the merged entity using its minority stake. The merger is anticipated to create roughly $150 million in yearly cost synergies. Following the acquisition, ArcelorMittal USA’s steel mills could avoid paying market prices for iron ore, the raw material for steel manufacturing.
ArcelorMittal was created through a merger between India’s Mittal Steel and Europe’s Arcelor 14 years ago. The company intends to spend $500 million in cash generated from the sale of its US subsidiary on a share repurchase program.
Subject to regulatory approvals and fulfillment of other closing terms, the transaction is anticipated to complete within the fourth-quarter of 2020.
Regarding the acquisition of ArcelorMittal’s US assets, chairman of the board, president and CEO of Cleveland-Cliffs, Lourenco Goncalves, said: “Steelmaking is a business where production volume, operational diversification, dilution of fixed costs and technical expertise matter above all else, and this transaction achieves all of these. ArcelorMittal is a world-class organization that we have long admired as our customer and our partner, and we know for a fact that they have taken good care of their U.S. assets. [….]. We are creating an exceptional company, based on great people and supported by our existing strong relationship with the United Steelworkers, the United Auto Workers, and the Machinists unions.”
Following the turbulence in the US steel industry in the early 2000s, several mills located in Northwest Indiana’s lakeshore went through a process of consolidation and ended up under the US Steel (a first billion-dollar company in the world) or ArcelorMittal.
The recent series of consolidation in the US steel sector, which is going through a lean phase, will turn the 173-year-old Cleveland-Cliffs into the biggest producer of flat-rolled steel in North America, with shipments of 17 million tons in 2019.
With mines in Michigan and Minnesota, Cleveland-Cliffs supplies ore to steel mills in the Great Lakes region. The company is also North America’s largest iron ore pellet producer with a capacity of 28 million long tons.
The takeover deal is expected to turn the stock of Cleveland-Cliffs bullish in the days ahead.
Technically, the stock has closed above its 50-day moving average. Additionally, the MACD indicator reading has turned positive. Therefore, we are anticipating the stock to being a fresh uptrend in the days ahead.
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