Cleveland-Cliffs, in bid to boost auto steel business, to buy ArcelorMittal USA for $1.4 billion

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.

Ohio-based Cleveland-Cliffs expects its second major deal in less than a year to boost sales to the key automotive market.

Earlier this year, the global steel industry saw its biggest slump in production in a decade as demand from key consumers, including automakers, was hit hard by coronavirus lockdowns. The transaction is expected to close by the end of this year and will save the combined entity about $150 million in annual costs.

“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 a statement. “This transaction achieves all of these.”

Cleveland-Cliffs will pay about $873 million of common and non-voting preferred stock, and $505 million in cash, according to the statement. The deal comes as U.S. steel prices recover, driven by tightening supply after lockdowns hurt demand.

In March, Cleveland-Cliffs 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 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 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.

While top producer China was quick to rebound, ArcelorMittal said in July that a recovery in the global market was not without risks. Steel demand -- a barometer of the global economy -- could take more than a year to fully recover even with massive stimulus measures worldwide.

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.

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.

Cleveland-Cliffs shares have declined 30 percent this year, leaving it with a market value of $2.35 billion.