Cleveland-Cliffs Inc. has reached a deal to acquire AK Steel Holding Corp.
Cliffs will acquire all of the issued and outstanding shares of AK Steel common stock. The transaction implies an aggregate consideration to AK Steel shareholders of approximately $1.1 billion on a fully diluted basis, a total enterprise value of approximately $3 billion for AK Steel and an acquisition multiple of 5.6x LTM adjusted EBITDA.
The expanded organization will be led by Lourenco Goncalves, chairman, president and CEO of Cliffs.
Under the terms of the merger agreement, AK Steel shareholders will receive 0.40 shares of Cliffs common stock for each outstanding share of AK Steel common stock they own. Upon completion of the transaction, Cliffs shareholders will own approximately 68% and AK Steel shareholders will own approximately 32% of the combined company, respectively, on a fully diluted basis.
The transaction will combine Cliffs, North America’s largest producer of iron ore pellets, with AK Steel, a leading producer of innovative flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and steel products. The combined company is expected to be ideally positioned to provide high-value iron ore and steel solutions to customers primarily across North America.
“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,” Goncalves said in a statement. “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.”
AK Steel CEO Roger K. Newport added: “The combination of Cliffs’ iron ore pellet capabilities and our innovative, high-quality steel product development and production is strategically compelling. Together, we expect to be able to take advantage of growth opportunities faster and more fully than either company could on its own.”
The transaction is expected to close in the first half of 2020, subject to approval by the shareholders of both companies, receipt of regulatory approvals and satisfaction of other customary closing conditions.
Cliffs has obtained an approximately $2 billion financing commitment from Credit Suisse in connection with a new asset-backed loan and the refinancing of AK Steel’s 2023 senior secured notes.
Moelis & Company LLC and Credit Suisse are acting as financial advisers to Cliffs and Jones Day is serving as legal counsel. Goldman Sachs & Co. LLC is acting as financial adviser to AK Steel and Weil, Gotshal & Manges LLP is serving as legal counsel. The transaction has been unanimously approved by both companies’ boards, and both boards recommend that their respective shareholders vote in favor of the transaction.
