(Bloomberg) — Cleveland-Cliffs Inc. will buy the U.S. operations of ArcelorMittal SA for $1.4 billion in cash and shares to become the biggest flat-rolled steel producer in North America.
Cleveland-Cliffs will pay about $873 million of common and non-voting preferred stock, and $505 million in cash, according to a statement.
The transaction will save about $150 million in annual costs for the combined operations, improve Cleveland-Cliffs’ liquidity and is expected to boost its sales to the key automotive market. U.S. steel prices have risen in recent months, driven by tight supply after plant usage dropped in response to weaker demand due to coronavirus lockdowns.
Read more: Steel Price Hikes Signal More Supply Squeeze than Demand Surge
“Steelmaking is a business where production volume, operational diversification, dilution of fixed costs, and technical expertise matter above all else,” Cleveland-Cliffs Chairman Lourenco Goncalves said in the statement. “This transaction achieves all of these.”
ArcelorMittal plans to use $500 million of the cash proceeds to repurchase shares, starting immediately, the company said in a separate statement. In July the company said it was considering “structural changes” to the business as it adjusts to the effect of the coronavirus pandemic on global steel demand. The company suspended dividend payments earlier in the year and had previously set a target of about $2 billion in asset sales to help reduce debt.
The sale will improve ArcelorMittal’s risk profile and reduce net debt as Cleveland-Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately $500 million and pensions and other post-employment benefit liabilities. The enterprise value of the deal is about $3.3 billion, Cleveland-Cliffs said.
Read More: ArcelorMittal Sees Signs of Virus Low Point as Lockdowns Ease
For Ohio-based Cleveland-Cliffs, this is the second major deal in less than a year. The company in March acquired AK Steel, an automotive and industrial-parts maker valued at $3 billion. The miner finished the deal after raising $725 million in a junk-bond sale.
ArcelorMittal, which is based in Luxembourg, generated revenue of $18.6 billion from the North American region last year, accounting for about a quarter of its sales. The assets being acquired include six steelmaking facilities, eight finishing facilities, two iron ore mining and pelletizing operations, and three coal and coke-making operations.
Reuters first reported on a potential deal Sunday.
ArcelorMittal’s shares have dropped 34% this year to 10.31 euros as of Sept. 25, giving it a market capitalization of 11.4 billion euros ($13.3 billion). Cleveland-Cliffs shares have declined 30% in the same period, leaving it with a market value of $2.35 billion.
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