Cleveland-Cliffs Inc. agreed to buy Canadian steelmaker Stelco Holdings Inc. for about $3.85 billion, in the company’s first major move after losing out in its bid for United States Steel Corp. last year.

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Cleveland-Cliffs to buy Ontario steelmaker Stelco for $3.85 billion Back to video

Shareholders in Canada’s Stelco will receive cash and shares worth about $70, Cliffs said in a statement on Monday, representing a premium of 87 per cent from the closing price on Friday.

The deal is the latest in a series by Cliffs chief executive Lourenco Goncalves, who built the company from an iron ore miner just a few years ago into one of the top four U.S. Steel producers and the country’s biggest automotive steel supplier. The combative executive tried unsuccessfully last year to acquire U.S. Steel, and has been a vocal opponent of the company’s agreement to sell itself instead to Nippon Steel Corp. of Japan.

Shares of Cleveland-Cliffs were little changed at 10:19 a.m. Monday, while Stelco shares surged 73 per cent to $64.50 in Toronto. In a call with analysts, Goncalves defended the large premium his company is paying.

“Stelco was completely undervalued in the marketplace,” the CEO said. “Cleveland-Cliffs is buying a fantastic company at the bottom of the market — because we understand the cyclicality of this business.”

Stelco operates two facilities in Ontario, Canada and ships approximately 2.6 million net tons of flat-rolled steel annually, primarily hot-rolled steel to service centre customers. The acquisition will expand Cliffs’ steelmaking footprint and double its exposure to the flat-rolled spot market, the company said.

Stelco, once called the Steel Company of Canada, traces its roots back more than 110 years. The company fell upon hard times by the mid-2000s and filed for bankruptcy protection. U.S. Steel bought the troubled producer in 2007 and changed the name to U.S. Steel Canada. Less than a decade later, U.S. Steel took some of Stelco’s best contracts and abandoned what was left of the company in 2015. Stelco chief executive Alan Kestenbaum, a turnaround artist with a long history in the commodities industry, acquired the assets out of bankruptcy in 2017 and restored the Stelco name.

Stelco’s shareholders representing about 45 per cent of the ownership have agreed to support the deal. The deal also has the backing of United Steelworkers union President David McCall, Cliffs said.

Kestenbaum himself owns about 16 per cent of the company, according to data compiled by Bloomberg, which was worth about $560 million after the Stelco shares jumped on Monday.

The transaction is expected to close in the fourth quarter of 2024, subject to approval by Stelco shareholders, receipt of regulatory approvals and satisfaction of other customary closing conditions.

The company sees a “clear path” towards regulatory approval in Canada, Goncalves said Monday. Cliffs has pledged to keep Stelco’s headquarters in Canada, maintain Canadian representation on its management team and make capital investments of at least $60 million over the next three years.

Wells Fargo, J.P. Morgan and Moelis & Company LLC are acting as financial advisers to Cliffs, while BMO Capital Markets is acting as financial adviser to Stelco, and McCarthy Tétrault LLP and A&O Shearman LLP are serving as legal counsel to Stelco. RBC Capital Markets is acting as financial adviser and Stikeman Elliott LLP as legal counsel to the special committee of Stelco’s board of directors.

Bloomberg.com