ArcelorMittal announced this morning that it has entered into a definitive agreement with Cleveland-Cliffs Inc. pursuant to which Cleveland-Cliffs will acquire 100% of the shares of ArcelorMittal USA for a combination of cash and stock.
Under the terms of the agreement, ArcelorMittal expects to receive an aggregate equity value consideration of $1.4 billion upon closing of the Transaction. Approximately one third of the consideration is in upfront cash ($505 million). The remaining two thirds of the consideration is in the form of equity:
- stock component of approximately 78 million shares of Cleveland-Cliffs common stock with value of $500 million; and
- non-voting preferred stock redeemable for approximately 58 million shares of Cleveland-Cliffs common stock with an aggregate value of $373 million or an equivalent amount in cash.
- In addition, Cleveland-Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately $0.5 billion and pensions and other post-employment benefit liabilities (“OPEB”) which Cleveland-Cliffs values at $1.5 billion.
Favorable valuation achieved for ArcelorMittal USA due to the high synergistic potential of the combined company. The Transaction valuation for ArcelorMittal USA equates to an enterprise value multiple of approximately 6x through-the-cycle EBITDA.
ArcelorMittal will participate in the upside potential of the larger combined company, which is more diversified, fully-integrated and has significant synergy potential.
Significant value creation potential from exposure to a highly synergetic combination
The combined company is expected to generate an estimated $150 million of annual cost synergies. ArcelorMittal will participate in the future value creation potential through its minority shareholding.
Key areas of anticipated synergies include optimizing the combined footprint, raw material sourcing and supply chain efficiencies, and integrating corporate functions.
This transaction repositions ArcelorMittal’s platform in North America which will continue to service its clients through its strategic assets in Canada, Mexico and AM/NS Calvert in the US.
These assets represent a strong footprint in North America with Dofasco and ArcelorMittal Mexico amongst the lowest cost producers in the region. AM/NS Calvert, which is already amongst the world’s most advanced steel finishing facilities, will be augmented by the recently announced intention to construct an EAF to optimize its slab sourcing.
ArcelorMittal will retain its R&D program and innovation centers to maintain its product and process development that underpins its leadership position.
The deconsolidation of the associated liabilities at ArcelorMittal USA, comprising mostly pension and OPEB liabilities, will improve the Group’s risk profile, reduce net debt and strengthen its capital structure and credit metrics.
ArcelorMittal intends to redistribute $500 million of the cash proceeds to shareholders through a share buyback program.
The buyback program will commence with effect from today and comply with purchase price rules as per the Company’s share buyback mandate. Share buybacks may be undertaken until the earlier of 31 March 2021 or when ArcelorMittal has fully utilized the allocated $500 million.
Lakshmi Mittal, Chairman and CEO, ArcelorMittal, said, “This transaction is a unique opportunity for ArcelorMittal to unlock significant value for shareholders while retaining exposure to the North American economy through our high-quality NAFTA assets alongside a participation in what will be a stronger, better integrated, US business. I would like to thank all employees of ArcelorMittal USA for their hard work in ensuring the business maintained its reputation as a trusted, quality supplier of steels for American manufacturing. I am confident you will have a bright future with Cleveland-Cliffs.”
ArcelorMittal USA is one of the largest steelmakers in the USA and serves a broad manufacturing base as a leading supplier of quality steel products in major North American markets including automotive, construction, pipe and tube, appliance, container and machinery. ArcelorMittal USA owns and operates several facilities, including mines, integrated steelmaking facilities, mini-mills and finishing operations. In 2019, ArcelorMittal USA had revenues of $9.9 billion and total steel shipments of 12.5 million short tons.