Cleveland-Cliffs to acquire AK Steel

Cleveland-Cliffs Inc. of Cleveland and AK Steel Holding Corp. of West Chester, Ohio, have announced that they have entered into a definitive merger agreement pursuant to which Cleveland-Cliffs will acquire all of the issued and outstanding shares of AK Steel's common stock. Lourenco Goncalves, chairman of the board, president and CEO at Cleveland-Cliffs, will lead the expanded organization.

The transaction will combine Cliffs, one of North America’s largest producers of iron ore pellets, with AK Steel, a leading producer of flat-rolled carbon, stainless and electrical steel products, to create a vertically integrated producer of value-added iron ore and steel products, AK steel reports in a news release on the merger. The combined company will be positioned to provide high-value iron ore and steel solutions to customers across North America.

The transaction is expected to close in the first half of 2020, AK Steel says.

Following the completion of the transaction, Goncalves will lead the expanded organization, and Roger Newport, CEO and director of AK Steel, plans to retire. Three existing members of AK Steel’s board of directors will join the Cliffs board, and two existing Cliffs board members will step down, bringing the Cliffs board to 12 members in total. 

As a result of the transaction, AK Steel will become a direct, wholly owned subsidiary of Cliffs and will retain its branding and corporate identity. 

According to AK Steel, the merger brings together complementary businesses to create a company with a full suite of value-added products. The integrated supply chain provides AK Steel self-sufficiency in iron ore supply. Together, Cleveland-Cliffs and AK Steel will have a presence across the entire manufacturing process, from mining to pelletizing to the development and production of finished high-value steel products. 

The merger also solidifies demand for Cliffs’ pellet offtake, with potential for growth into merchant pig iron, AK Steel says. The combined company will ensure pellet volume commitments to AK Steel’s blast furnaces along with Cleveland-Cliffs’ Toledo, Ohio, hot-briquetted iron facility to complement its existing long-term minimum volume pellet offtake agreements with other key integrated steel producers. 

Also, the potential startup of pig iron manufacturing at AK Steel’s facility in Ashland, Kentucky, would create opportunities for pellet demand and more metallics products without much additional capital expenditures, AK Steel reports. The company had announced plans to fully shut down its integrated steelmaking complex in Ashland last February. 

“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,” Goncalves says. “The pro forma Cliffs will be a vertically integrated steel company that is expected to drive improved profitability for existing Cliffs and AK Steel shareholders and is well-positioned to serve both the blast furnace and electric arc furnace segments. In addition, Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the combined company provide flexibility to pursue additional growth opportunities, including the potential future utilization of the blast furnace in Ashland to produce merchant pig iron, an opportunity neither company could pursue on a standalone basis.

“For Cliffs, we expect to realize immediate growth and a long-desired objective of a more diverse customer base, as well as more predictable cash flow generation due to the contracted nature of AK Steel’s sales of high-end automotive steel,” he continues. 

“The combination of Cliffs’ iron ore pellet capabilities and our innovative, high-quality steel product development and production is strategically compelling,” adds Newport. “Together, we expect to be able to take advantage of growth opportunities faster and more fully than either company could on its own. With AK Steel’s 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will facilitate a smooth integration process.”