JPMorgan Upgrades AK Steel Amid Cleveland-Cliffs Acquisition

AK Steel Holding Corporation AKS has entered into a definitive merger agreement with Cleveland-Cliffs Inc CLF, in which the latter will acquire all the shares of the steelmaker.

Cleveland-Cliffs’ proposed acquisition of would likely be approved, with no antitrust opposition or another bidder emerging, according to JP Morgan.

The Analyst

JPMorgan’s Michael Gambardella upgraded AK Steel from Underweight to Neutral.

The Thesis

AK Steel’s shares are currently trading in-line with the transaction value offered by Cleveland-Cliffs and the $3 billion deal should “go through as proposed,” Gambardella said in the upgrade note.

Referring to the terms of the offer, the analyst said that the all-stock transaction had an exchange ratio of 0.400x.

“Additionally, at its current price, AKS is trading at 2019E and 2020E EV/EBITDA multiples of 6.3x and 7.2x, respectively, compared with its average forward multiple over the last three years of roughly 6.4x,” Gambardella wrote.

AK Steel Price Action

Shares of AK Steel Holding had risen more than 3% to $3.12 at the time of publishing on Wednesday.