Cleveland-Cliffs (CLF) to Acquire ArcelorMittal USA (MT) for $1.4B
(Updated - September 28, 2020 6:24 AM EDT)
Cleveland-Cliffs Inc. (NYSE: CLF) announced that it has entered into a definitive agreement with ArcelorMittal S.A. (NYSE: MT), pursuant to which Cleveland-Cliffs will acquire substantially all of the operations of ArcelorMittal USA LLC and its subsidiaries for approximately $1.4 billion. 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. The company will also be the largest iron ore pellet producer in North America, with 28 million long tons of annual capacity.
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 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, 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. Mr. Goncalves stated: “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. 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.”
Mr. Goncalves continued, “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. 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.”
Transaction Rationale
- Combined innovation capabilities with world-class expertise in iron ore pellets, HBI and steel
- Furthers commitment to environmentally and socially conscious steelmaking with self-sufficiency in HBI and pellets
- Improves operational capabilities, flexibility, and steelmaking cost performance
- Asset locations consistent with Cleveland-Cliffs’ long-standing, U.S.-centric strategy
- Increased exposure to highly desirable automotive end market
- Fully-integrated system delivers improved through-the-cycle margins
- Deleveraging transaction creates a more resilient, pro-forma balance sheet
- Highly synergistic transaction with clear line of sight to achievement of approximately $150 million of estimated annual cost savings
- Substantial asset base increases liquidity and secured borrowing availability
- Enhances optionality for future production of merchant pig iron
Assets Acquired
The facilities included in the transaction are:
- Steelmaking:
- Indiana Harbor
- Burns Harbor
- Cleveland
- Coatesville
- Steelton
- Riverdale
- Finishing:
- Columbus
- Conshohocken
- Double G. Coatings JV (ArcelorMittal USA’s 50% interest)
- Gary Plate
- I/N Tek JV with Nippon Steel (ArcelorMittal USA’s 60% interest)
- I/N Kote JV with Nippon Steel (ArcelorMittal USA’s 50% interest)
- Piedmont
- Weirton
- Mining and Pelletizing:
- Hibbing JV (ArcelorMittal USA’s 62.3% interest)
- Minorca
- Met Coal / Cokemaking:
- Monessen
- Princeton
- Warren
Additional Details
The transaction has been approved by the board of directors of both companies and is expected to close in the fourth quarter of 2020, subject to the receipt of regulatory approval and the satisfaction of other customary closing conditions.
The cash consideration from Cleveland-Cliffs is expected to be financed using available cash on hand and liquidity. Cleveland-Cliffs has received commitments to increase its existing Asset Based Lending Facility. Upon close of the transaction, ArcelorMittal USA inventories and accounts receivable are expected to further increase the Company’s pro forma combined borrowing base, enhancing availability and overall liquidity.
Advisors and Counsel
Goldman Sachs & Co. LLC is acting as financial advisor to Cleveland-Cliffs and Jones Day is serving as legal counsel. BofA Securities is acting as financial advisor to ArcelorMittal S.A. and Cleary Gottlieb Steen & Hamilton LLP is serving as legal counsel.