Cleveland-Cliffs, Inc. said Monday it would buy all the U.S. operations of the world's biggest steel manufacturer ArcelorMittal SA for around $1.4 billion.
People with information on cash and shares buyout said over the weekend the consolidation would signal a new drive among steel companies to diversify operations - making it less prone to volatility in demand.
Sources said ArcelorMittal would start a stock buyback which would enable Cleveland-Cliffs to become the largest flat-rolled steel maker in North America.
ArcelorMittal said around a third of the acquisition will be in an upfront cash payment while the remainder will be through equity. The enterprise value of the deal is roughly $3.3 billion.
Cleveland-Cliffs estimates the deal will improve sales to motor-vehicle manufacturers. In the first months of this year the international steel industry witnessed its deepest downturn in output in 10 years as demand was hit by the worldwide health crisis.
The transaction between Ohio-based Cleveland-Cliffs and the Luxembourg-headquartered steel and mining group will save the merged company around $150 million in annual costs.
According to Cleveland-Cliffs chairperson Lourenco Goncalves, steel manufacturing is "a business where production, diversification, dilution of fixed costs and expertise matter above all else," Bloomberg quoted him as saying. "This deal achieves all of these," he added.
ArcelorMittal said in 2019 it was working to dispose of some $2 billion in assets by the middle of next year to trim down debt.
The company agreed in December to sell half of the stock in its shipping operations, including selling its stake in Gerdau, a steel manufacturer in Brazil.
Under the agreement, Cleveland-Cliffs has the option to assume the U.S. liabilities of ArcelorMittal, which include net dues of about half a billion dollars and other after-employment benefits worth $1.5 billion. The deal is expected to be finalized in the fourth quarter this year subject to regulatory approvals.
