Overnight news broke that Cleveland Cliffs (CLF) agreed to acquire AK Steel in an all-stock deal valued at $1.1 billion. Under the deal terms, AKS shareholders will receive 0.40 shares of CLF common stock for each outstanding AKS share. The fixed exchange ratio implies a consideration of $3.36/share.
“We are excited to be able to deliver real value to the shareholders of both Cliffs and AK Steel through a value enhancing and leverage-neutral transaction,” said Lourenco Gonclaves, chairman of the board, president and CEO of Cliffs, in the statement. Gonclaves will lead the expansion of the company, and AKS chief Roger Newport will retire.
“By combining the best-in-class quality of AK Steel’s assets and its enviable product mix with Cliffs’ debt profile and proven management team, we are creating a premier North American company, self-sufficient in iron ore pellets and geared toward high value-added steel products,” he said. “For Cliffs, we expect to realize immediate growth and a long-desired objective of a more diverse customer base, as well as more predictable cash flow generation due to the contracted nature of AK Steel’s sales of high-end automotive steel. Our track record of providing high-grade iron ore combined with AK Steel’s recognized ability to produce the highest quality steel grades, creates a highly complementary and compelling business model. We look forward to welcoming the AK Steel team into our organization and creating a unique company focused on executing value-enhancing opportunities for all of our stakeholders.”
The deal represents a 16 percent premium to yesterday's closing price of $2.89 for AKS.
CLF says the acquisition implies a total enterprise value of ~$3B. Upon completion, CLF shareholders will own 68 percent and AKS shareholders will own 32 percent of the combined company.
CLF says it expects to realize $120M in annual cost savings within the first 12 months after closing.