Cleveland Cliffs is buying Canada's Stelco in $2.5 billion cash-and-stock deal

By Ciara Linnane

Deal expands Cliffs' steelmaking footprint and doubles exposure to the flat-rolled spot market

Cleveland Cliffs Inc.'s stock (CLF) reversed early losses to trade up 1.2% Monday after the flat-rolled-steel producer said it's acquiring Canada's Stelco Holdings Inc. (CA:STLC) in a stock-and-cash deal valued at about $2.5 billion.

Under the terms of the deal, the Cleveland-based company will pay C$60 ($43.98) per share in cash plus 0.454 share of its common stock for each Stelco share owned, equal to a full consideration of C$70 a share. The deal has the full support of the United Steelworkers Union.

"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 company said in a statement.

The deal is expected to immediately boost 2024 and 2025 per-share earnings. Once it closes, Cleveland Cliffs shareholders will own about 95% of the new entity and Stelco shareholders will own the remaining 5%.

Stelco has two operational sites, both based in Ontario; Lake Erie Works is a newer facility, while Hamilton Works is a downstream finishing and coke-making facility. Stelco ships about 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel sold to service-center customers.

Hot rolled steel is a carbon-steel commodity that's used in construction for items such as railroad tracks or sheet metal, in manufacturing for pipes and tubing, in transportation for automotive frames, and in agricultural equipment for pipelines, among other things.

The deal "expands Cliffs' steelmaking footprint and doubles Cliffs' exposure to the flat-rolled spot market, with cost advantages in raw materials, energy, healthcare, and currency," said the statement. "Stelco adds capabilities that complement Cliffs' existing operations and product portfolio, while diversifying its customer base across the construction and industrial sectors," it added.

The deal has been approved by both boards and is expected to close in the fourth quarter. Stelco will operate as a wholly owned subsidiary under its own name.

Cliffs currently has 1,000 employees in Canada, where it has seven tooling and stamping plants and a ferrous processing and trading company location, all based in Ontario.

Stelco will make capital investments of at least C$60 million over the next three years to increase steel production from those facilities.

Cleveland Cliffs stock has fallen 20% to date in 2024, while the S&P 500 has gained 17.7%.

-Ciara Linnane

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07-15-24 0957ET

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