Cleveland-Cliffs couldn't buy U.S. Steel, so it's buying the old U.S. Steel Canada instead in a blockbuster, multi-billion-dollar deal.
Cleveland-Cliffs reached an agreement to buy Canada-based Stelco for $2.5 billion in cash and stock, expanding its reach across North America. The company was founded in 1910 and was known as U.S. Steel Canada from 2007 to 2016, when it was a U.S. Steel subsidiary, before it was sold to Bedrock Industries and taken public.
Cleveland-based Cleveland-Cliffs, one of Northwest Indiana's largest employers, will gain the Lake Erie Works and Hamilton Works steel mills in Ontario. Hamilton Works is a downstream finishing and cokemaking mill, while Lake Erie Works is the most recently constructed and lowest-cost steelmaking facility in North America.
Together, they produce about 2.6 million tons of flat-rolled steel per year, most of which is hot-rolled steel they sell to service centers.
Cleveland-Cliffs will add another 1,800 United Steelworkers-represented employees. It says there will be no impact to union jobs.
The steelmaker plans to pay $60 per share and 0.454 shares of Cliffs common stock per share.
"I want to first recognize Alan Kestenbaum and the Stelco team for the remarkable turnaround they executed at Stelco, turning what was an underperforming asset under previous ownership into a very cost-efficient and profit-oriented company," Cleveland-Cliffs Chairman, President and CEO Lourenco Goncalves said in a news release announcing the deal. "In the process, they restored the Canadian national pride associated with Stelco, and we are going to continue that. We did this deal the way it should be done, reaching a respectful agreement between the two parties that keeps national interests at the forefront and recognizes the importance of the workforce."
Cleveland-Cliffs plans to operate Stelco, which was formed when smaller steel companies merged in 1910, as a subsidiary and keep its brand, name and headquarters in tact.
“I am proud of what we have accomplished over the past seven years, and the value we have generated," Stelco CEO and Chairman Alan Kestenbaum said. "This sale crystallizes a 32% (compound annual growth rate) on a Stelco common share investment since our IPO in 2017. Most importantly, we have revitalized Stelco and restored it to its iconic status in Canada. I know that Cliffs will continue to build upon the excellent work and life environment we have created for all of our employees, and continue to be a reliable supplier to our valued customers, while maintaining Stelco’s stature and reputation in Canada and maintaining our Canadian national interests. One of the important drivers for this transaction was receiving a meaningful portion of the consideration in Cliffs shares. I have strong belief and optimism in the North American steel market. I believe that Lourenco and his team have created a winning platform and I intend to remain an investor in Cliffs for a long time to come as he and his team continue to build out their platform and business.”
Cleveland-Cliffs currently employs 1,000 steelworkers in Canada at seven tooling and stamping plants and a Ferrous Processing & Trading Co. location in Ontario. It estimates the purchase will result in $120 million in savings per year and is planning to grow the business in Canada.
"The enterprise value of this transaction is significantly lower than the cost of building an equivalent replacement mill in the United States, and the cost structure is lower than what a new U.S. mill would provide us," Goncalves said. "Stelco is a company that respects the Union, treats their employees well, and leans into their cost advantages. With that, they are a perfect fit for Cleveland-Cliffs and our culture. We look forward to proving that our ownership of Stelco will be a net benefit for Canada, the province of Ontario, and the cities of Nanticoke and Hamilton.”
USW International President David McCall voiced support for the deal, which has already been approved by both companies' boards and is expected to close in the fourth-quarter of this year.
“On behalf of our entire membership, I am excited for this transaction and proud to support a deal that is great for the resilience of manufacturing and union jobs in North America," he said in Cleveland-Cliffs' news release. "Cleveland-Cliffs has a proven track record of making sure the union always has a seat at the table, and this deal was no different. We are delighted to further expand our already great partnership between Cliffs and the USW.”
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