Cleveland-Cliffs Inc. (NYSE:CLF) has made a significant move by agreeing to buy Canadian steelmaker Stelco Holdings Inc. for approximately C$3.85 billion ($2.8 billion). This acquisition marks Cleveland-Cliffs’ first major strategic decision following its unsuccessful bid for United States Steel Corp. (NYSE:X) last year. The acquisition signifies a robust expansion in the company’s steelmaking capabilities and market reach.
Acquisition Details
Shareholders of Stelco Holdings will receive cash and shares worth about C$70 each, representing a premium of 87% from Stelco’s closing price on Friday. This Cleveland-Cliffs acquisition of Stelco highlights the company’s aggressive growth strategy under the leadership of CEO Lourenco Goncalves.
CEO Lourenco Goncalves’ Vision
Lourenco Goncalves, the CEO of Cleveland-Cliffs, has been instrumental in transforming the company from an iron ore miner into one of the top four U.S. steel producers. Goncalves has made it clear that his vision includes expanding Cliffs’ presence in the steel industry, with a particular focus on automotive steel supply. The Cleveland-Cliffs acquisition of Stelco is a testament to his commitment to this vision, especially after the failed attempt to acquire United States Steel, which instead chose to sell to Nippon Steel Corp.
Stelco’s Historical Significance
Stelco, with a history spanning over 110 years, operates two major facilities in Ontario, Canada, producing approximately 2.6 million net tons of flat-rolled steel annually. This production is primarily directed towards hot-rolled steel for service center customers. The Cleveland-Cliffs acquisition of Stelco will significantly increase Cliffs’ footprint in the flat-rolled steel market.
Stelco, originally known as the Steel Company of Canada, faced significant financial difficulties in the mid-2000s, leading to bankruptcy protection. It was acquired by United States Steel Corp. in 2007 and rebranded as U.S. Steel Canada. However, by 2015, U.S. Steel abandoned most of Stelco’s assets, leading to another bankruptcy. Alan Kestenbaum, Stelco’s current CEO and a turnaround expert, acquired the assets in 2017 and revitalized the company.
Stakeholder Support
The Cleveland-Cliffs acquisition of Stelco has received substantial backing from key stakeholders. Shareholders representing about 45% of Stelco’s ownership, including Fairfax Financial Holdings and Alan Kestenbaum, have agreed to support the deal. Additionally, the United Steelworkers union, led by President David McCall, has also endorsed the transaction.
Closing Conditions and Advisors
The acquisition is expected to close in the fourth quarter of 2024, pending approval from Stelco shareholders, regulatory approvals, and other customary closing conditions.
In terms of financial advisory roles, Wells Fargo, J.P. Morgan, and Moelis & Company LLC are acting as advisors to Cleveland-Cliffs. On the other hand, BMO Capital Markets is serving as the financial advisor to Stelco, with McCarthy Tétrault LLP and A&O Shearman LLP providing legal counsel. RBC Capital Markets and Stikeman Elliott LLP are advising the special committee of Stelco’s board of directors.
Strategic Implications
The Cleveland-Cliffs acquisition of Stelco positions Cleveland-Cliffs as a formidable player in the North American steel market. By doubling its exposure to the flat-rolled spot market and expanding its production capabilities, Cliffs is set to enhance its competitiveness and market share. This move is likely to have significant implications for the steel industry, particularly in terms of supply chain dynamics and market pricing.
In conclusion, the Cleveland-Cliffs acquisition of Stelco for $2.8 billion is a strategic leap towards solidifying Cleveland-Cliffs’ position as a leading steel producer. With robust support from shareholders and key stakeholders, and under the visionary leadership of Lourenco Goncalves, Cleveland-Cliffs is poised for continued growth and success in the steel industry.
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