Cleveland-Cliffs Doubles Down on Steel with $2.5B Acquisition, Expects $120M in Annual Savings

Cleveland-Cliffs Inc. CLF shares are trading lower today. The company entered into a definitive agreement to acquire Stelco Holdings Inc. STZHF for a total enterprise value of around $2.5 billion (CAD3.4 billion).

Stelco is an integrated steelmaker consisting of two operational sites, both located in the province of Ontario. Stelco ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service center customers. 

As per the deal, Stelco shareholders will receive CAD60.00 per share in cash plus 0.454 shares of Cliffs common stock per Stelco share (or CAD10.00 per share as of July 12, 2024), making a total of CAD70.00 per Stelco share.

The acquisition values Stelco at a multiple of 4.8x the LTM Adjusted EBITDA as of March-end. Cliffs anticipates achieving around $120 million in annual cost savings without affecting union jobs.

The transaction is expected to immediately boost CLF’s EPS for 2024 and 2025, with pro forma net leverage standing at 2.4x the LTM Adjusted EBITDA as of March-end.

The transaction has been approved unanimously by both Cliffs’ and Stelco’s boards and is expected to close in the fourth quarter of 2024, subject to shareholder and regulatory approvals and other customary closing conditions.

Post-transaction closure, Cliffs shareholders will hold about 95% and Stelco shareholders approximately 5% of the combined company on a fully diluted basis.

Cliffs’ acquisition of Stelco expands its steelmaking footprint and doubles its exposure to the flat-rolled spot market, leveraging cost advantages in raw materials, energy, healthcare, and currency.

This acquisition integrates 1,800 United Steelworkers (USW) union employees into Cliffs’ workforce.

Lourenco Goncalves, Chairman of the Board, President, and CEO of Cliffs, stated, “The enterprise value of this transaction is significantly lower than the cost of building an equivalent replacement mill in the United States, and the cost structure is lower than what a new U.S. mill would provide us.”

Cleveland-Cliff’s total liquidity stood at $4 billion as of March-end.

Investors can gain exposure to the stock via SPDR S&P Metals & Mining ETF XME and First Trust Materials AlphaDEX Fund FXZ.

Price Action: CLF shares are down 2.41% at $15.78 premarket at the last check Monday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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