Cleveland Cliffs to Acquire Canadian Steel Producer for $2.5B
Cleveland Cliffs has agreed to acquire Canadian steel manufacturer Stelco Holdings in a stock-and-cash transaction valued at approximately (C$3.85 billion) $2.5 billion, its first deal since its unsuccessful bid for U.S. Steel Corp. in 2023.
The Cleveland, OH-based steel producer will pay C$70 per share, consisting of C$60 per share in cash and 0.454 common shares for each Stelco share owned, representing an 87% premium to Stelco’s C$37.36 closing share price on July 12. Upon completion of the transaction, Cliffs shareholders will own approximately 95% and Stelco shareholders will own the rest of the combined company.
Cliffs said the transaction gives a “clear line of sight” to achieving $120 million in expected annual cost savings, and it expects the acquisition to be immediately accretive to 2024 and 2025 earnings. The company stated that the agreement has the full backing of the United Steelworkers union and is scheduled to close in the fourth quarter.
“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,” said Lourenco Goncalves, chairman of the board, president and CEO of Cliffs
Stelco ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service center customers. The acquisition expands Cliffs’ steelmaking footprint and doubles its exposure to the flat-rolled spot market, said Cliffs.
Stelco operates in two Ontario sites, one a steelmaking facility in Hamilton and the other a downstream finishing and cokemaking facility in Nanticoke. It is expected to retain its headquarters in Ontario and make capital investments of at least C$60 million over the next three years.
“This sale crystallizes a 32% CAGR on a Stelco common share investment since our IPO in 2017. Most importantly, we have revitalized Stelco and restored it to its iconic status in Canada,” added Alan Kestenbaum, executive chairman of the board and CEO of Stelco.
In August 2023, Cleveland-Cliffs launched an unsolicited $7.3 billion offer to acquire rival U.S. Steel. However, U.S. Steel rejected the deal as “unreasonable” and instead chose to merge with Japanese steel behemoth Nippon Steel for $14.9 billion.