Cleveland-Cliffs to Acquire AK Steel
Combines complementary businesses across mining, pelletizing and innovative manufacturing to create vertically integrated producer of value-added iron ore and steel products
Compelling financial profile with strong balance sheet, expected earnings accretion, and strong free cash flow generation to execute on long-term growth opportunities
Combination creates significant value for shareholders through realization of
This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191203005504/en/
Under the terms of the merger agreement,
The fixed exchange ratio implies a consideration of
The transaction will combine Cliffs, North America’s largest producer of iron ore pellets, with
Mr. Goncalves stated: “We are excited to be able to deliver real value to the shareholders of both Cliffs and
He continued, “The pro forma Cliffs will be a vertically integrated steel company that is expected to drive improved profitability for existing Cliffs and
Mr. Goncalves concluded, “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
Key Strategic & Financial Benefits
- Brings together complementary businesses to create company with full suite of value-added products: The combination will create significant opportunities to generate additional value from market trends across the entire steel value chain and enable more consistent, predictable performance through market cycles. The integrated supply chain provides
AK Steelself-sufficiency in iron ore supply. Together, Cliffs and AK Steelwill have a presence across the entire manufacturing process, from mining to pelletizing to the development and production of finished high value steel products, including Next Generation Advanced High Strength Steels for automotive and other markets.
- Solidifies demand for Cliffs’ pellet offtake, with potential for growth into merchant pig iron: The combined company will ensure pellet volume commitments to AK Steel’s blast furnaces along with Cliffs’
Toledohot briquetted iron facility, to complement its existing long-term minimum volume pellet offtake agreements with other key integrated steel producers. Further, the potential startup of pig iron manufacturing at AK Steel’s facility in Ashland, Kentuckywould create future opportunities for pellet demand and more metallics products without significant additional capital expenditures.
- Accretion through significant annual synergies: The transaction offers significant potential for operational synergies, which will contribute to long-term value creation for investors. The combination is expected to generate approximately
$120 millionof annual cost synergies to be fully realized within the first 12 months after closing, primarily from consolidating corporate functions, reducing duplicative overhead costs, and procurement and energy cost savings, as well as operational and supply chain efficiencies.
- Stronger company with compelling pro forma financial metrics: The combined company is expected to benefit from a larger and more diversified base of customers, with less overall emphasis on commodity-linked contracts. For the last twelve months, the pro forma combined company has generated net revenue of
$8.2 billion1, Adjusted EBITDA of $1.3 billion2 and unlevered free cash flow of $923 million2,3. The transaction will also be leverage-neutral with pro forma Total Debt to Adjusted EBITDA of 3.5x.
Additional Transaction Details & Governance
Following completion of the transaction, with Mr. Goncalves leading the expanded organization, Mr. Newport will retire as CEO and a Director of
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
Advisors and Counsel
Board of Directors’ Recommendation
The transaction has been unanimously approved by both companies’ Boards, and both Boards recommend that their respective shareholders vote in favor of the transaction.
Joint Conference Call & Webcast Information
Founded in 1847,
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This communication contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In this context, forward-looking statements often address expected future business and financial performance and financial condition, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “would,” “target” and similar expressions, as well as variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the consummation of the proposed transaction and the anticipated benefits thereof. These and other forward-looking statements reflect AKS’s and CLF’s current beliefs and judgments and are not guarantees of future results or outcomes. Forward-looking statements are based on assumptions and estimates that are inherently affected by economic, competitive, regulatory, and operational risks and uncertainties and contingencies that may be beyond AKS’s or CLF’s control. They are also subject to inherent risks and uncertainties that could cause actual results or performance to differ materially from those expressed in any forward-looking statements. Important risk factors that may cause such a difference include (i) the completion of the proposed transaction on the anticipated terms and timing or at all, including obtaining shareholder and regulatory approvals and anticipated tax treatment, (ii) potential unforeseen liabilities, future capital expenditures, revenues, expenses, earnings, economic performance, indebtedness, financial condition, losses and future prospects, (iii) the ability of CLF to integrate its and AKS’s businesses successfully and to achieve anticipated synergies, (iv) business and management strategies for the management, expansion and growth of the combined company’s operations following the consummation of the proposed transaction, (v) potential litigation relating to the proposed transaction that could be instituted against AKS, CLF or their respective directors, (vi) the risk that disruptions from the proposed transaction will harm AKS’ or CLF’s business, including current plans and operations, (vii) the ability of AKS or CLF to retain and hire key personnel, (viii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed transaction, (ix) uncertainty as to the long-term value of CLF’s common stock, (x) continued availability of capital and financing and rating agency actions, (xi) legislative, regulatory and economic developments and (xii) unpredictability and severity of catastrophic events, including acts of terrorism or outbreak of war or hostilities, as well as management’s response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed transaction, will be more fully discussed in the joint proxy statement/prospectus that will be included in the registration statement on Form S-4 that will be filed with the
IMPORTANT INFORMATION ABOUT THE TRANSACTION AND WHERE TO FIND IT
In connection with the proposed transaction involving
PARTICIPANTS IN THE SOLICITATION
AKS, CLF and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding AKS’ directors and executive officers, including a description of their direct interests, by security holdings or otherwise, is set forth in AKS’ Form 10-K for the fiscal year ended
NO OFFER OR SOLICITATION
This communication is not intended to and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote of approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
1 Pro forma LTM numbers exclude intercompany sales, which are calculated based on 25% of revenue, per
2 Pro forma numbers include
3 Defined as Adj. EBITDA –
Cleveland-Cliffs Investor Relations
Director, Investor Relations(216) 694-6544
Director, Corporate Communications(216) 650-0168
AK Steel Investor Relations
Douglas O. Mitterholzer
General Manager, Investor Relations(513) 425-5215
AK Steel Media
Lisa H. Jester
Corporate Manager, Communications and Public Relations(513) 425-2510