Cleveland-Cliffs Inc. (NYSE: CLF) has reach a definitive agreement to acquire substantially all of the operations of ArcelorMittal USA including the seller’s Minorca mine in Virginia and its 62 percent stake in Hibbing Taconite.
Cliffs will pay approximately $1.4 billion for the acquisition. The transaction is anticipated to be EPS accretive. The acquired operations are debt free although they include a liability for ArcelorMittal's pension funds.
Upon closure of the transaction, Cleveland-Cliffs will be the largest flat-rolled steel producer in North America, with combined shipments of approximately 17 million net tons in 2019. Included are steelmaking facilities in Indiana Harbor, Burns Harbor, Cleveland, Coatesville, Steelton and Riverdale.
The company will also be the largest iron ore pellet producer in North America, with 28 million long tons of annual capacity. When the deal closes, Cliffs will own all of the taconite mines on the Iron Range except for U.S. Steel's Minntac mine in Mountain Iron and its Keetac mine in Keewatin (which currently is shuttered).
The acquisition was announced just six months after Cliffs' shareholders approved the acquisition of AK Steel Holding Corp.
“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," said Lourenco Goncalves, chairman of the board, president and CEO of Cleveland-Cliffs, who will lead the expanded organization. "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.”
ArcelorMittal USA will be acquired by Cleveland-Cliffs on a cash-free and debt-free basis, with a combination of 78.2 million shares of Cleveland-Cliffs common stock, non-voting preferred stock with an approximate aggregate value of $373 million, and $505 million in cash, Cliffs said in its formal announcement. The enterprise value of the transaction is approximately $3.3 billion, which takes into consideration the assumption by Cleveland-Cliffs of pension/OPEB liabilities and working capital.
In 2018 and 2019, ArcelorMittal USA averaged annual revenues of approximately $10.4 billion and annual adjusted EBITDA of approximately $700 million. The assets acquired include six steelmaking facilities, eight finishing facilities, two iron ore mining and pelletizing operations, and three coal and cokemaking operations.
Cleveland-Cliffs expects the acquisition to reduce the company’s leverage from 4.3x to 3.6x on a pro-forma 2019 adjusted EBITDA basis. Cliffs anticipates approximately $150 million in annual cost savings, although Goncalves said in a morning conference call that it's premature to announce where savings might be obtained through operational synergies.
"The acquisition of ArcelorMittal USA amplifies our position in the discerning automotive steel marketplace, and further improves our position in important U.S. markets such as construction, appliances, infrastructure, machinery and equipment," Goncalves said. "It also adds to our strong legacy raw material profile and growing finishing capabilities. The transaction will enable us to become a more efficient fully-integrated steel system, with the ability to realize all of our operational and financial goals.”
He stressed that "green will be the norm," in the company, emphasizing the competitive value of being a clean manufacturer of high-quality steel.
Cliffs also is in the midst of constructing a hot-briquettes iron (HBI) plant in Toledo which will produce feed stock for electric arc furnace (EAF) steel mills.
"Producing pig iron here in the United States will help EAFs be greener, Goncalves said, because they won't need to buy it from countries having lesser pollution controls.