Stelco Acquisition: Key Details, Impact, and What Comes Next

Cleveland-Cliffs' acquisition of Stelco marks a significant milestone in the steel industry. This strategic move enhances Cleveland-Cliffs' market position as the largest flat-rolled steel producer in North America, diversifies its customer base, and expands its geographical footprint into Canada. The acquisition is expected to bring substantial operational and cost efficiencies, benefiting both companies and their stakeholders.

What Is Stelco?

Founded over 100 years ago, Stelco is a Canadian steel manufacturer known for its high-quality and innovative steel products. The company differentiates itself through a strong commitment to community and environmental responsibility, as well as a highly skilled workforce. Stelco's Canadian roots and focus on producing locally sourced steel further set it apart in the market, appealing to customers who value domestic production and sustainable practices.

Who Acquired Stelco?

Cleveland-Cliffs Inc. is a major player in the steel and mining industry, focusing on steelmaking and related operations. The company offers a range of products including steel, tooling and stamping, and tubular components. Known for its commitment to sustainability, Cleveland-Cliffs has achieved significant reductions in greenhouse gas emissions. With a strong market presence, the company is influential in preserving union manufacturing jobs and maintaining a safe work environment for its 30,000 employees.

When Was Stelco Acquired?

Cleveland-Cliffs announced its acquisition of Stelco on July 15, 2024, and completed the transaction on November 1, 2024. This acquisition occurred during a period of significant consolidation in the steel industry, with companies focusing on cost-efficiency and market expansion. The timing aligns with Cleveland-Cliffs' strategic goals to enhance its position as the largest flat-rolled steel producer in North America and to diversify its customer base while maintaining a strong commitment to union jobs and integrated steelmaking.

Why Was Stelco Acquired?

• Market Expansion: The acquisition of Stelco significantly enhances Cleveland-Cliffs' market presence by expanding its geographical footprint into Canada. This move doubles Cleveland-Cliffs' exposure to the flat-rolled spot market, thereby increasing its steel production capacity and maintaining significant employment levels in the region.
• Technology Integration: Stelco boasts one of the newest and most technologically advanced integrated steelmaking facilities in North America. By integrating these advanced capabilities, Cleveland-Cliffs can enhance its production efficiency and diversify its product portfolio, particularly in premium-quality coated, cold-rolled, and hot-rolled steel products.
• Competitive Advantage: The acquisition provides Cleveland-Cliffs with several competitive advantages, including cost benefits in raw materials, energy, healthcare, and currency. Additionally, the transaction is expected to generate approximately $120 million in annual cost savings and be immediately accretive to 2024 and 2025 EPS. The expanded geographical presence and diversified customer base further strengthen Cleveland-Cliffs' market position.

Acquisition Terms

• Acquisition Price: The total enterprise value of the acquisition is approximately USD $2.5 billion (CAD $3.4 billion). Stelco shareholders will receive CAD $60.00 per Stelco common share in cash and 0.454 shares of Cliffs common stock per share of Stelco common stock, representing a total consideration of CAD $70.00 per Stelco share.
• Payment Method: The transaction was completed using a combination of cash and stock. Specifically, CAD $60.00 per Stelco common share in cash and 0.454 shares of Cliffs common stock per share of Stelco common stock.
• Key Conditions or Agreements:
  • The transaction received full support from David McCall, International President of the USW union.
  • Voting support agreements were entered into by Fairfax Financial Holdings, Alan Kestenbaum, an affiliate of Lindsay Goldberg, and other executive officers and directors of Stelco, representing approximately 45% of Stelco’s outstanding shares.
  • The transaction is subject to approval by Stelco shareholders, receipt of regulatory approvals, and satisfaction of other customary closing conditions.
  • The transaction was unanimously approved by Cliffs’ and Stelco’s respective Boards.
  • Stelco will continue operations as a wholly-owned subsidiary, preserving its name and legacy.
  • Cliffs will make capital investments of at least CAD $60 million over the next three years and plans to increase steel production over current levels from Stelco’s facilities.
  • Cliffs will maintain significant employment levels in Canada and Canadian representation on the management team.
  • Cliffs will ensure existing local supplier arrangements are maintained and will continue Stelco’s collaboration with McMaster University and CanmetMATERIALS.
  • Cliffs will increase overall charitable support by CAD $2 million per year, directed by Stelco’s management team.
  • Cliffs will continue Stelco’s partnership with the Hamilton Tiger-Cats and Forge FC and maintain its 40% equity interest and the master lease of Tim Hortons Field.

Impact on Stelco

The acquisition of Stelco by Cleveland-Cliffs has led to several operational and managerial changes. Stelco will continue to operate as a wholly-owned subsidiary, preserving its name and legacy while maintaining its headquarters in Hamilton, Ontario. Significant employment levels in Canada will be upheld, and Canadian representation on the management team will be ensured. Additionally, Cleveland-Cliffs plans to maintain existing local supplier arrangements and continue Stelco’s collaborations with McMaster University and CanmetMATERIALS, reinforcing its commitment to community and academic partnerships.

In terms of product offerings, the acquisition has expanded Cleveland-Cliffs' steelmaking footprint and doubled its exposure to the flat-rolled spot market. This move diversifies the customer base across the construction and industrial sectors, enhancing the company's product portfolio. Cleveland-Cliffs plans to increase steel production from Stelco’s facilities and make capital investments of at least CAD $60 million over the next three years. Employee reactions have been positive, with full support from the USW union, while customers are reassured by the continuity and quality of services.

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