Cleveland-Cliffs Becomes largest flat-rolled steel manufacturer in North America
By Terry Troy
Cleveland-Cliffs Inc. is acquiring ArcelorMittal USA and its subsidiaries for approximately $1.4 billion, making Cleveland-Cliffs the largest flat-rolled steel manufacturer in North America, with combined shipments of approximately 17 million net tons in 2019.
The company will also be the largest iron ore pellet manufacturer in North America, with 28 million long tons of annual capacity. The acquisition follows an early acquisition completed this year of AK Steel Holding Corporation, getting Cleveland-Cliffs into the production of value-added steel and specialty manufactured parts for the automotive industry.
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. 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 (Earnings Before Interest, Taxes, Depreciation and Amortization) of approximately $700 million. The assets acquired include 6 steelmaking facilities, 8 finishing facilities, 2 iron ore mining and pelletizing operations, and 3 coal and cokemaking operations.
The transaction is anticipated to be EPS accretive (increases earnings per share), and 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, including the expectation of approximately $150 million in estimated annual cost savings. The acquisition is also expected to increase the Company’s liquidity substantially due to an increased ABL borrowing base.
Lourenco Goncalves, Chairman of the Board, president and CEO of Cleveland-Cliffs, will lead the expanded organization.
“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 Goncalves in a prepared statement. “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 US assets.
“We look forward to welcoming the ArcelorMittal USA team into our organization. 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,” Goncalves added. “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. 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.”
Cleveland-Cliffs has a long standing history with the City of Cleveland, its predecessor the Cleveland Iron Mining Company being founded in 1847, when Samuel Mather and six other Ohio-based partners learned of rich iron ore deposits being discovered on the highlands of the Upper Peninsula of Michigan.
The Cleveland-based operations of ArcelorMittal USA were previously a part of Ohio-based International Steel Group which had purchased the assets of Acme Steel and LTV Steel Company.