Cleveland-Cliffs to buy rival Stelco for $3.85 billion

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Cleveland-Cliffs Inc. agreed to buy Canadian steelmaker Stelco Holdings Inc. for about $3.85 billion, in the company’s first major move after losing out in its bid for United States Steel Corp. last year.

Shareholders in Canada’s Stelco will receive cash and shares worth about $70, Cliffs said in a statement on Monday, representing a premium of 87 per cent from the closing price on Friday.

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The deal is the latest in a series by Cliffs chief executive Lourenco Goncalves, who built the company from an iron ore miner just a few years ago into one of the top four U.S. steel producers and the country’s biggest automotive steel supplier. The combative executive tried unsuccessfully last year to acquire U.S. Steel, and has been a vocal opponent of the company’s agreement to sell itself instead to Nippon Steel Corp. of Japan.

Stelco operates two facilities in Ontario, Canada, and ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service centre customers. The acquisition will expand Cliffs’ steelmaking footprint and doubles its exposure to the flat-rolled spot market, the company said.

Stelco, once called the Steel Company of Canada, traces its roots back more than 110 years. The company fell onto hard times by the mid-2000s and filed for bankruptcy protection. U.S. Steel bought the troubled producer in 2007 and changed the name to U.S. Steel Canada. Less than a decade later, U.S. Steel took some of Stelco’s best contracts and abandoned what was left of the company in 2015. Stelco chief executive Alan Kestenbaum, a noted turnaround artist with a long history in the commodities industry, acquired the assets out of bankruptcy in 2017 and restored the Stelco name.

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Stelco’s shareholders representing about 45 per cent of the ownership — including its two largest investors, Fairfax Financial Holdings and Kestenbaum — have agreed to support the deal. The deal also has the backing of United Steelworkers union president David McCall, Cliffs said.

The transaction is expected to close in the fourth quarter of 2024, subject to approval by Stelco shareholders, receipt of regulatory approvals and satisfaction of other customary closing conditions.

Wells Fargo, J.P. Morgan and Moelis & Company LLC are acting as financial advisers to Cliffs, while BMO Capital Markets is acting as financial adviser to Stelco, and McCarthy Tétrault LLP and A&O Shearman LLP are serving as legal counsel to Stelco. RBC Capital Markets is acting as financial adviser and Stikeman Elliott LLP as legal counsel to the special committee of Stelco’s board of directors.

Bloomberg.com

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