Big Steel Gets Bigger

Cleveland-Cliffs has landed its second major acquisition of the year.

The 173-year-old steelmaker has agreed to purchase the U.S. operations of Luxembourg-based ArcelorMittal for $1.4 billion. The agreement follows Cleveland-Cliffs’ acquisition of AK Steel in May.

Why It Matters

The ArcelorMittal deal, which is due to be completed late this year, will make Cleveland-Cliffs the largest producer of flat-rolled steel and iron-ore pellet in North America. The two companies shipped 17 million tons of steel and 28 million long tons, respectively, last year in the region.

Combining operations also is expected to save about $150 million per year.

“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. “This transaction achieves all of these.”

ArcelorMittal and AK Steel also significantly boost Cleveland-Cliff’s automotive capabilities.

What Cleveland-Cliffs Gets

ArcelorMittal USA produced 12.9 million metric tons of steel in 2019.

Over the last two years, the unit averaged annual sales of about $10.4 billion and adjusted EBITDA of $700 million.

The acquired assets include six steelmaking facilities, eight finishing facilities, three coal and cokemaking operations and two iron ore mining and pelletizing operations.

What ArcelorMittal Gets

The deal will give ArcelorMittal USA’s parent a 16% stake in Cleveland-Cliffs. This could increase to more than 25% in the future.

ArcelorMittal, which previously agreed to sell stakes in its shipping business and in Brazilian steelmaker Gerdau, will use the proceeds from the Cleveland-Cliffs agreement to repurchase stock shares and reduce debt. Cleveland-Cliffs also will assume ArcelorMittal USA’s liabilities.