Cliffs Buys AK
Cliffs buys AK.
Cleveland-Cliffs buys AK Steel for $1.1 billion.
This deal merges Cliffs, North America’s biggest maker of iron ore pellets, with AK Steel, a maker of innovative flat-rolled carbon, stainless, and electrical steel products. It creates a vertically integrated maker starting with mining to pelletizing to the development and production of high-value finished steel products. The deal ensures pellet volume commitments to AK Steel blast furnaces and Cliffs' hot briquetted iron facility. This complements long-term agreements with other integrated steel producers for the least volume pellet offtake. The startup of pig iron making in the Ashland, Kentucky facility would create openings for pellet demand and other metallic products. This is another step toward the electric arc furnace market, which would follow the HBI plant.
Lourenco Goncalves of Cliffs said: ‘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. 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.
The pro forma Cliffs will be a vertically integrated steel company that is expected to drive improved profitability for existing Cliffs and AK Steel shareholders and is well-positioned to serve both the blast furnace and electric arc furnace segments. Also, Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the joint company give the flexibility to pursue other growth opportunities, including the potential future use of the blast furnace in Ashland, Kentucky to produce merchant pig iron, an opportunity neither company could pursue on a standalone basis.
For Cliffs, we expect to realize immediate growth and a long-desired aim of a more diverse customer base, as well as a 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 our stakeholders.’
Roger Newport of AK Steel added: ‘We believe this transaction is a compelling opportunity for AK Steel shareholders to take part in the substantial upside potential of what will be a premier vertically integrated producer of value-added iron ore and steel products with significant scale and diversification. Our shareholders will benefit from exposure to a larger, more diversified company that is better positioned to capitalize on growth opportunities. 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. With AK Steel’s 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will make for a smooth integration process.’
Moelis & Company and Credit Suisse served as financial advisors to Cliffs. Jones Day served as legal advisor.
Goldman Sachs served as financial advisor to AK Steel. Weil, Gotshal & Manges served as legal advisor.
Cleveland-Cliffs buys AK Steel for $1.1 billion.
This deal merges Cliffs, North America’s biggest maker of iron ore pellets, with AK Steel, a maker of innovative flat-rolled carbon, stainless, and electrical steel products. It creates a vertically integrated maker starting with mining to pelletizing to the development and production of high-value finished steel products. The deal ensures pellet volume commitments to AK Steel blast furnaces and Cliffs' hot briquetted iron facility. This complements long-term agreements with other integrated steel producers for the least volume pellet offtake. The startup of pig iron making in the Ashland, Kentucky facility would create openings for pellet demand and other metallic products. This is another step toward the electric arc furnace market, which would follow the HBI plant.
Lourenco Goncalves of Cliffs said: ‘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. 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.
The pro forma Cliffs will be a vertically integrated steel company that is expected to drive improved profitability for existing Cliffs and AK Steel shareholders and is well-positioned to serve both the blast furnace and electric arc furnace segments. Also, Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the joint company give the flexibility to pursue other growth opportunities, including the potential future use of the blast furnace in Ashland, Kentucky to produce merchant pig iron, an opportunity neither company could pursue on a standalone basis.
For Cliffs, we expect to realize immediate growth and a long-desired aim of a more diverse customer base, as well as a 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 our stakeholders.’
Roger Newport of AK Steel added: ‘We believe this transaction is a compelling opportunity for AK Steel shareholders to take part in the substantial upside potential of what will be a premier vertically integrated producer of value-added iron ore and steel products with significant scale and diversification. Our shareholders will benefit from exposure to a larger, more diversified company that is better positioned to capitalize on growth opportunities. 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. With AK Steel’s 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will make for a smooth integration process.’
Moelis & Company and Credit Suisse served as financial advisors to Cliffs. Jones Day served as legal advisor.
Goldman Sachs served as financial advisor to AK Steel. Weil, Gotshal & Manges served as legal advisor.
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