Cleveland-Cliffs Inc., an Ohio-based iron ore mining company, has agreed to acquire AK Steel, a steelmaker headquartered in Ohio with facilities in Troy and Dearborn, that will create a vertically integrated producer of value-added iron ore and steel products.
Lourenco Goncalves, chairman, president, and CEO of Cliffs, will lead the expanded organization when the transaction closes, which is expected in the first half of 2020.
The transaction will combine Cliffs, North America’s largest producer of iron ore pellets, with AK Steel, a leading producer of flat-rolled carbon, stainless, and electrical steel products, to create a company that will be positioned to provide high-value iron ore and steel solutions to customers primarily across North America.
“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,” says Goncalves.
“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,” he continues. “In addition, Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the combined company provide flexibility to pursue additional growth opportunities, including the potential future utilization of the blast furnace in Ashland to produce merchant pig iron, an opportunity neither company could pursue on a standalone basis.”
Under the terms of the merger agreement, AK Steel shareholders will receive 0.40 shares of Cliffs common stock for each outstanding share of AK Steel common stock they own. Upon completion of the transaction, Cliffs shareholders will own approximately 68 percent and AK Steel shareholders will own approximately 32 percent of the combined company, respectively, on a fully diluted basis.
“We believe this transaction is a compelling opportunity for AK Steel shareholders to participate 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,” says Roger K. Newport, CEO of AK Steel. “Our shareholders will benefit from exposure to a larger, more diversified company that is better positioned to capitalize on growth opportunities. 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 facilitate a smooth integration process.”
Following completion of the transaction, with Goncalves leading the expanded organization, Newport will retire as CEO and a director of AK Steel. Three existing members of AK Steel’s Board of Directors will join the Cliffs board, and two existing Cliffs board members will step down, bringing the Cliffs board to 12 members in total. AK Steel will become a direct, wholly owned subsidiary of Cliffs and will retain its branding and corporate identity. Cliffs will continue to be listed on the NYSE with its headquarters in Cleveland, while maintaining a significant presence at AK Steel’s current offices in West Chester, Ohio along with its Research and Innovation Center in Middletown, Ohio.
AK Steel’s Dearborn facility was originally established by Henry Ford as part of an integrated manufacturing complex called The Rouge. Ford Motor Co. spun off the steel mill assets in 1989 and it became Rouge Steel Co. The plant was purchased by Russia’s Severstal in 2004. AK Steel bought the plant 10 years later.