Cleveland-Cliffs (NYSE: CLF) is buying "substantially all" of Luxembourg-based ArcelorMittal's (NYSE: MT) operations in the United States in a US$1.4 billion deal that will make it North America's largest flat-rolled steel producer.
Under the transaction, Cleveland-Cliffs will pay about US$505 million in cash and US$873 million in common and non-voting preferred shares.
The boards of both companies support the deal and Cleveland-Cliffs expects the transaction will close in the fourth quarter of this year.
"Once completed, Cleveland-Cliffs will be the largest flat-rolled steel producer in North America, number two in overall steelmaking in North America (behind Nucor), with combined shipments of ~17 million tons in 2019, and the largest iron ore pellet producer in North America, with 28 million tonnes of annual pellet capacity," David Gagliano of BMO Capital Markets said in a research note.
Cleveland-Cliffs will be picking up six steelmaking assets, eight finishing facilities, two IO mining and pelletizing operations, and three coal/cokemaking facilities, according to Tyler Kenyon and Jeffrey Rossetti of Cowen and Company.
"Cleveland-Cliffs expects to realize $150 million in annual cost savings (by end of year 1 or 4Q21) achieved through asset rationalization, economies of scale and reduction of duplicate overhead," the analysts commented in a research note. "The purchase price appears reasonable and synergy targets conservative."
London-based BMO analyst Colin Hamilton noted that the impact of the transaction on raw material markets "will be minimal, particularly given the cross-holding still involved at the equity level," but said "over time we could see more material from ArcelorMittal's Canadian iron ore operations, both to the company's European steel plants and potentially to the DRI market, where we see potential growth over the coming years amid carbon reduction pressure and low gas prices."