Cleveland-Cliffs, Inc. (NYSE:CLF), a member of the Steel Framing Industry Association, announced recently that it had entered into a definitive agreement to acquire Stelco Holdings, Inc. (TSX:STLC). The acquisition confirms Cliffs’ commitment and leadership in integrated steel production in North America, and also brings an additional 1,800 United Steelworkers union employees into Cliffs’ workforce.
Under the terms of the agreement, Stelco shareholders will receive CAD $60.00 per Stelco common share in cash and 0.454 shares of Cliffs common stock per share of Stelco common stock (or CAD $10.00 per share as of July 12, 2024), representing a total consideration of CAD $70.00 per Stelco share. The transaction has received full support from David McCall, International President of the USW union.
$2.5 Billion Acquisition
The transaction implies a total enterprise value of approximately USD $2.5 billion (CAD $3.4 billion) for Stelco and represents an acquisition multiple of 4.8x 3/31/24 LTM Adjusted EBITDA with synergies. Cliffs has a clear line of sight to the achievement of approximately $120 million of estimated annual cost savings with no impact to union jobs. The acquisition is expected to be immediately accretive to 2024 and 2025 EPS. The transaction implies pro forma net leverage of 2.4x 3/31/2024 LTM Adjusted EBITDA. Upon completion of the transaction, Cliffs shareholders will own approximately 95% and Stelco shareholders will own approximately 5% of the combined company, on a fully diluted basis.
Stelco is an integrated steelmaker consisting of two operational sites, both located in the province of Ontario: Lake Erie Works, the newest and lowest-cost integrated steelmaking facility in North America; and Hamilton Works, a downstream finishing and cokemaking facility. Stelco ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service center customers.
Cliff’s Flat-Rolled Steel Spot Market to Double
The acquisition of Stelco expands Cliffs’ steelmaking footprint and doubles Cliffs’ exposure to the flat-rolled spot market, with cost advantages in raw materials, energy, healthcare, and currency. Stelco adds capabilities that complement Cliffs’ existing operations and product portfolio, while diversifying its customer base across the construction and industrial sectors. The transaction brings substantial integration opportunities, generating synergies associated with procurement, overhead, and public company related expenses.
“I want to first recognize Alan Kestenbaum and the Stelco team for the remarkable turnaround they executed at Stelco, turning what was an underperforming asset under previous ownership into a very cost-efficient and profit-oriented company,” said Lourenco Goncalves, chairman of the board, president and CEO of Cliffs. “In the process, they restored the Canadian national pride associated with Stelco, and we are going to continue that. We did this deal the way it should be done, reaching a respectful agreement between the two parties that keeps national interests at the forefront and recognizes the importance of the workforce.”
Alan Kestenbaum, Executive Chairman of the Board and CEO of Stelco, stated: “I am proud of what we have accomplished over the past seven years, and the value we have generated. 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. I know that Cliffs will continue to build upon the excellent work and life environment we have created for all of our employees, and continue to be a reliable supplier to our valued customers, while maintaining Stelco’s stature and reputation in Canada and maintaining our Canadian national interests.”
Benefits to Canada
Cliffs is excited to expand its current 1,000-employee footprint in Canada, which consists of seven Tooling and Stamping plants and a Ferrous Processing and Trading Company (FPT) location, all in Ontario. The Company is committed to working with stakeholders and to deliver meaningful benefits to Canada, Ontario, and the communities where Stelco operates. Cliffs’ plan is to grow the business in Canada and build on the progress Stelco has made in recent years. In connection with this investment:
- Stelco’s headquarters will remain in Hamilton and the name and legacy of Stelco will be preserved in Hamilton, Nanticoke, and Canada.
- Stelco will continue its significant operations in Hamilton and Nanticoke, make capital investments of at least CAD $60 million over the next three years, and plans to increase steel production over current levels from those facilities.
- Stelco will maintain significant employment levels in Canada and Canadian representation on the management team.
- Recognizing the importance of Stelco’s operations to the businesses in the region, Cliffs will ensure existing local supplier arrangements are maintained.
- Cliffs values and will continue Stelco’s collaboration with McMaster University and CanmetMATERIALS and will maintain the existing research chairs with McMaster University.
- Cliffs respects Stelco’s commitment to charitable and community support and will build on that legacy by increasing the overall charitable support by CAD $2 million per year, to be directed by Stelco’s management team.
- Cliffs will continue Stelco’s partnership with the Hamilton Tiger-Cats and Forge FC and will maintain its 40% equity interest and the master lease of Tim Hortons Field. The community engagement program, including the Tiger-Cats High School Mentorship Program will also be maintained.
- Cliffs is committed to operating the business and approaching sustainability in a way that supports the United Nations’ Sustainable Development Goals (UN SDGs) and will ensure the Canadian operations operate in accordance with the Company’s sustainability priorities.
The transaction has been unanimously approved by Cliffs’ and Stelco’s respective Boards. The Stelco Board formed a special committee of directors which, following review and consideration of the transaction, unanimously recommended the Stelco Board approve the transaction. The transaction is expected to close in the fourth quarter of 2024, subject to approval by Stelco shareholders, receipt of regulatory approvals and satisfaction of other customary closing conditions.
Read the complete Cleveland-Cliffs news release here.
About Cleveland-Cliffs, Inc.
Cleveland-Cliffs is the largest flat-rolled steel producer in North America. Founded in 1847 as a mine operator, Cliffs also is the largest manufacturer of iron ore pellets in North America. The Company is vertically integrated from mined raw materials, direct reduced iron, and ferrous scrap to primary steelmaking and downstream finishing, stamping, tooling, and tubing. Cleveland-Cliffs is the largest supplier of steel to the automotive industry in North America and serves a diverse range of other markets due to its comprehensive offering of flat-rolled steel products. Headquartered in Cleveland, Ohio, Cleveland-Cliffs employs approximately 28,000 people across its operations in the United States and Canada.
About Stelco Holdings, Inc.
Stelco is a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in North America. Stelco produces flat-rolled value-added steels, including premium-quality coated, cold-rolled and hot-rolled steel products, as well as pig iron and metallurgical coke. With first-rate gauge, crown, and shape control, as well as uniform through-coil mechanical properties, Stelco’s steel products are supplied to customers in the construction, automotive, energy, appliance, and pipe and tube industries across Canada and the United States as well as to a variety of steel service centers, which are distributors of steel products.
Additional Resources
- Update #19 | Sustainability News from ArcelorMittal, Cleveland-Cliffs and Nucor
- SFIA Member Steel Mills Release Q4 and 2023 Full Year Earnings
- 5 Ways Steel Framing Optimizes the Construction Supply Chain