In a significant move that will transform the North American steel industry, Cleveland-Cliffs Inc., the largest U.S. producer of iron ore pellets, has agreed to purchase the U.S. assets of ArcelorMittal SA, the world’s largest steelmaker, in a deal worth approximately $1.4 billion.
Deal Structure and Details
The agreement, announced by both companies on Monday, will result in Cleveland-Cliffs becoming the largest flat-rolled steel producer in North America. In exchange for the U.S. assets, ArcelorMittal will receive $505 million upfront in cash and approximately two-thirds of the remaining consideration in the form of equity. This equity arrangement will give ArcelorMittal an initial stake of 16% in Cleveland-Cliffs, which could rise to as high as 25.5%.
The deal also includes the assumption of approximately $2 billion in liabilities by Cleveland-Cliffs, which includes pension-related obligations. This brings the total value of the transaction to $3.4 billion.
Impact on ArcelorMittal
For ArcelorMittal, this deal represents a significant step towards reducing its debt burden. The company has previously targeted offloading assets worth $2 billion as part of its efforts to manage its finances more effectively. With this agreement in place, ArcelorMittal will be able to carry out a share buyback program valued at $500 million.
In addition to the deal with Cleveland-Cliffs, ArcelorMittal is also exploring other opportunities to divest non-core assets. The company has previously agreed to sell stakes in its shipping business and Brazilian steelmaker Gerdau as part of its efforts to restructure and improve its financial performance.
ArcelorMittal’s Operations in North America
Despite the sale of its U.S. assets, ArcelorMittal will continue to serve the North American market through operations in Canada and Mexico, which collectively produced 9 million tonnes of steel last year. The company also maintains a joint venture with Nippon Steel at its Calvert, Alabama, steel processing facility.
ArcelorMittal’s U.S. business encompasses more than 18,000 employees and 25 facilities, including mines, steel-making facilities, and finishing operations that produced 12.9 million tonnes of steel in 2019.
Market Reaction
Shares of ArcelorMittal were up 8.3% in early trading following the announcement, although they had not fully recovered from losses suffered last week when concerns about rising coronavirus cases weighed on market sentiment.
Conclusion
The acquisition by Cleveland-Cliffs of ArcelorMittal’s U.S. assets represents a significant consolidation in the North American steel industry and underscores the ongoing efforts of major players to optimize their operations and improve financial performance. The deal is expected to have far-reaching implications for both companies, including potential changes in market share and influence.
Recommendations
- ArcelorMittal’s decision to divest its U.S. assets could signal a broader shift towards more focused business strategies among major steel producers.
- Cleveland-Cliffs’ expansion into the U.S. market will likely present both opportunities and challenges for the company, including potential integration costs and regulatory hurdles.
- The deal may have implications for other companies in the North American steel industry, potentially influencing consolidation efforts or leading to changes in market dynamics.
Additional Reading
- ArcelorMittal Eyes Sale of Canadian Iron Operations Worth $2 Billion
- Hudbay Minerals Seeks to ‘Extract Value from Its Own Camp’ Before Joining M&A Frenzy
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