In a move that’s set to reshape the North American steel industry, Cleveland-Cliffs Inc. (NYSE: CLF) has announced plans to acquire Canadian steelmaker Stelco Holdings Inc. (TSX: STLC) in a deal valued at approximately C$3.4 billion. The transaction, announced on July 15, 2024, marks a significant milestone in the consolidation of the steel sector and underscores Cleveland-Cliffs’ commitment to expanding its footprint in Canada.
Under the terms of the agreement, Cleveland-Cliffs will pay C$70.00 per Stelco share, consisting of C$60.00 in cash and 0.454 shares of Cliffs common stock. This offer represents a substantial 87% premium to Stelco’s closing share price of C$37.36 on July 12, 2024, and a 37% premium to its 52-week high, highlighting the value Cleveland-Cliffs sees in the Canadian steelmaker.
Lourenco Goncalves, Chairman of the Board, President and CEO of Cleveland-Cliffs, expressed enthusiasm about the acquisition, praising Stelco’s recent turnaround and cost-efficient operations. “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,” Goncalves stated.
The deal has received strong support from key stakeholders. Major Stelco shareholders, including Fairfax Financial Holdings, an affiliate of Lindsay Goldberg LLC, and Alan Kestenbaum, collectively holding approximately 45% of Stelco’s outstanding shares, have agreed to vote in favor of the transaction. This early backing significantly increases the likelihood of the deal’s approval.
Alan Kestenbaum, Executive Chairman of the Board and CEO of Stelco, highlighted the value creation for shareholders, noting a 32% CAGR on Stelco common share investment since its 2017 IPO. Kestenbaum also expressed confidence in Cleveland-Cliffs’ ability to build upon Stelco’s achievements and maintain its iconic status in Canada.
The acquisition is expected to bring several benefits to Canada and Stelco’s stakeholders. Cleveland-Cliffs has committed to preserving Stelco’s name and legacy, maintaining its headquarters in Hamilton, and continuing significant operations in Hamilton and Nanticoke. The company has also pledged to invest at least C$60 million over the next three years and aims to increase steel production from current levels.
Moreover, Cleveland-Cliffs has promised to maintain significant employment levels in Canada and ensure Canadian representation on the management team. The company will also continue Stelco’s collaborations with local institutions, including McMaster University and CanmetMATERIALS, and increase charitable support by C$2 million per year.
The United Steelworkers union has expressed support for the deal. David McCall, International President of the United Steelworkers, stated, “We are delighted to further expand our already great partnership between Cliffs and the USW.”
From a regulatory standpoint, the transaction still faces several hurdles. It requires approval under the Investment Canada Act, the Competition Act (Canada), and the U.S. Hart-Scott-Rodino Antitrust Improvements Act. Additionally, approval is needed under Stelco’s funding agreement with Canada’s Strategic Innovation Fund.
The deal is expected to close in the fourth quarter of 2024, subject to these regulatory approvals and the support of two-thirds of Stelco shareholders at a special meeting to be held this fall.
This acquisition represents a significant step in the consolidation of the North American steel industry. It allows Cleveland-Cliffs to strengthen its position in Canada while potentially realizing synergies across its expanded operations. For Stelco, it offers shareholders a substantial premium and the opportunity to participate in the combined company’s future growth through the stock component of the offer.
As the steel industry continues to evolve in response to global economic shifts and environmental pressures, this deal positions the combined entity to better compete on the international stage while maintaining a strong commitment to local communities and stakeholders in both the United States and Canada.
