AK Steel Agrees To Sale With Cleveland-Cliffs

Dec 3, 2019

West Chester-based AK Steel is selling to a Cleveland company.

AK Steel and Cleveland-based Cliffs released details of the proposed merger Tuesday morning. It's estimated to be worth about $1.1 billion, bringing the combined value to $3 billion. Under the terms, Cliffs would acquire all issued and outstanding shares of AK Steel stock. Cliffs' CEO, Lourenco Goncalves, will lead the expanded company.

"We are excited to be able to deliver real value to the shareholders of both Cliffs and AK Steel through a value enhancing and leverage-neutral transaction," Goncalves says in a release. "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."

AK Steel got its start in Middletown in 1899 as The American Rolling Mill Company, or Armco.

AK Steel CEO Roger Newport says shareholders should benefit from growth opportunities created by the merger.

"The combination of Cliffs' iron ore pellet capabilities and our innovative, high-quality steel product development and production is strategically compelling. Together, we expect to be able to take advantage of growth opportunities faster and more fully than either company could on its own," he says.

What Does This Mean For Shareholders?

Per the news release:

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% and AK Steel shareholders will own approximately 32% of the combined company, respectively, on a fully diluted basis.

The fixed exchange ratio implies a consideration of $3.36 per share of AK Steel common stock and represents a premium of 16% based on the closing share prices of Cliffs and AK Steel common shares, respectively, as of December 2, 2019, and a premium of 27% based on the 30-day volume weighted average price of AK Steel common shares. The transaction implies an aggregate consideration to AK Steel shareholders of approximately $1.1 billion on a fully diluted basis, a total enterprise value of approximately $3.0 billion for AK Steel and an acquisition multiple of 5.6x LTM Adjusted EBITDA.

A shareholder rights law firm is investigating the proposed sale announced Tuesday of West Chester-based AK Steel to Cleveland-Cliffs Inc.

Johnson Fistel, LLP, is looking into whether AK Steel board members breached their fiduciary duties, "including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for AK Steel shares of common stock," according to a statement.