Cleveland-Cliffs to Acquire Stelco for C$70 per Share
Cleveland-Cliffs (NYSE: CLF) has agreed to acquire Stelco Holdings Inc. (TSX: STLC) for C$70.00 per share, consisting of C$60.00 in cash and 0.454 Cliffs shares. The deal values Stelco at approximately C$3.4 billion, representing an 87% premium to Stelco's closing price on July 12, 2024. Key shareholders holding about 45% of Stelco shares have agreed to support the transaction. The acquisition is expected to close in Q4 2024, subject to regulatory approvals and shareholder vote. Cliffs commits to maintaining Stelco's Canadian operations, increasing production, and preserving its legacy. The deal aims to create synergies and strengthen Cliffs' position in the North American steel market.
- 87% premium offered to Stelco's shareholders, representing significant value
- Potential synergies and market expansion for Cleveland-Cliffs
- Commitment to maintain and grow Stelco's Canadian operations
- C$60 million capital investment planned over next three years
- Increased charitable support of C$2 million per year
- Regulatory approvals required, including Investment Canada Act and Competition Act
- C$100 million termination fee payable by Stelco if superior proposal accepted
- Potential integration challenges and costs
The acquisition of Stelco by Cleveland-Cliffs, priced at
Short-term, this deal offers substantial capital gains for Stelco shareholders. Long-term, holding Cliffs' shares allows investors to benefit from potential synergies and growth in the North American steel market. It's essential to note that almost half of Stelco's key shareholders have already supported the transaction, adding a layer of assurance for other investors.
Industry-specific terms such as “enterprise value” refer to the total value of the company, including debt. The transaction is valued at
From a legal perspective, this acquisition is contingent on several regulatory approvals, including compliance with the Investment Canada Act and the Competition Act of Canada. These regulations ensure that the transaction benefits the Canadian economy and does not create monopolistic conditions. Regulatory scrutiny could delay the closing, expected in Q4 2024.
The inclusion of non-solicitation provisions with fiduciary outs is standard for such deals, allowing Stelco to consider superior proposals if they arise, while Cliffs has the right to match any such offer. The reverse termination fee of
Acquisitions of this nature often focus on synergies and market expansion. The integration of Stelco’s operations into Cliffs' existing footprint in Canada suggests potential cost efficiencies and increased market share. For retail investors, understanding the strategic fit is crucial. Cliffs plans to leverage Stelco’s cost advantages and union relationships to bolster its operational effectiveness.
Additionally, the preservation of Stelco's brand and headquarters in Hamilton, alongside commitments to community engagement and sustainability, signals Cliffs' intent to maintain a positive public image and local support. These factors might contribute to smoother operational integration and stakeholder satisfaction.
NOT FOR DISTRIBUTION TO
The total enterprise value pursuant to the Transaction is approximately
Fairfax Financial Holdings, an affiliate of Lindsay Goldberg LLC, Alan Kestenbaum, and each of the other directors and executive officers of Stelco collectively holding approximately
Alan Kestenbaum, Executive Chairman of the Board and CEO of Stelco, stated: “I am proud of what we have accomplished over the past seven years, and the value we have generated. This sale crystallizes a
Lourenco Goncalves, Chairman of the Board, President and CEO of Cliffs, stated: “I want to first recognize Alan Kestenbaum and the Stelco team for the remarkable turnaround they executed at Stelco, turning what was an underperforming asset under previous ownership into a very cost-efficient and profit-oriented company. In the process, they restored the Canadian national pride associated with Stelco, and we are going to continue that. We did this deal the way it should be done, reaching a respectful agreement between the two parties that keeps national interests at the forefront and recognizes the importance of the workforce. Stelco is a company that respects the Union, treats their employees well, and leans into their cost advantages. With that, they are a perfect fit for Cleveland-Cliffs and our culture. We look forward to proving that our ownership of Stelco will be a net benefit for
Board of Directors’ Recommendation
The Board of Directors of the Company unanimously approved the Arrangement Agreement following receipt of the unanimous recommendation of the Special Committee. The Special Committee, comprised of independent directors, was appointed by the Board to, among other matters, review the potential transaction and potential alternatives and consider the Company’s best interests and the implications to shareholders and other stakeholders. The Board unanimously recommends that Stelco shareholders vote in favour of the Transaction.
The Company intends to call and hold a special meeting of shareholders this fall where the Transaction will be considered and voted upon by shareholders of record. Further information regarding the special meeting, including the record and meeting date, is expected to be made available late this summer.
In making its determination to unanimously recommend approval of the Transaction to the Board, the Special Committee, and in the Board’s determination to approve the Transaction, the Board, considered the following reasons, among others, for the Transaction:
- Compelling and immediate value and liquidity for shareholders, with large premiums to the current and 52-week high share prices;
- Ability to continue participating in the growth of Stelco, including in synergies created through the Transaction, via ownership of Cliffs common stock;
- Fairness opinions delivered by the advisor to the Special Committee as well as the advisor to the Board;
- Cliffs’ strong track record as an excellent operator of integrated steelmaking assets with a special relationship with its unions; and
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Clear path to closing in a timely manner with no financing contingencies and voting support agreements from almost
50% of Stelco’s shareholders.
Fairness Opinions
RBC Capital Markets provided an independent fairness opinion to the Special Committee and Stelco’s Board of Directors and BMO Capital Markets provided a fairness opinion to Stelco’s Board of Directors, in each case to the effect that, as of the date thereof, and based upon and subject to the various matters, limitations and qualifications and assumptions stated in each such opinion, the Consideration to be received by holders of Stelco’s common shares is fair, from a financial point of view, to such holders.
Transaction Summary
The Transaction will be completed pursuant to a plan of arrangement under the Canada Business Corporations Act. The Transaction is subject to approval at the special meeting of Stelco shareholders by (i) at least two-thirds of the votes cast by Stelco shareholders; and (ii) a simple majority of the votes cast by Stelco shareholders (excluding common shares required to be excluded pursuant to Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions). In addition to shareholder and court approvals, the Transaction is also subject to the receipt of applicable regulatory approvals, including approval under the Investment Canada Act, the Competition Act (
The Arrangement Agreement includes customary non-solicitation provisions, which are subject to customary "fiduciary out" provisions that entitle the Company to terminate the Arrangement Agreement and accept a superior proposal, subject to a customary right to match in favour of Cliffs and payment of a termination fee of
Upon closing of the Transaction, Stelco expects Cliffs to cause the Stelco common shares to cease to be listed on the TSX and to cause the Company to submit an application to cease to be a reporting issuer under applicable Canadian securities laws. Cliffs common stock is traded on the New York Stock Exchange.
Further information regarding the Transaction, the Arrangement Agreement, the voting support agreements and the special meeting of Stelco shareholders, including copies of the fairness opinions, will be included in the management information circular expected to be mailed to shareholders of record in connection with the special meeting. Copies of the proxy materials in respect of the special meeting, as well as a copy of the Arrangement Agreement and the voting support agreements, will also be available on SEDAR+ at www.sedarplus.ca.
Benefits to
Stelco understands that Cliffs is excited to build on its existing 1,000-employee footprint in
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Stelco’s headquarters will remain in
Hamilton and the name and legacy of Stelco will be preserved inHamilton ,Nanticoke , andCanada ; -
Stelco will continue its significant operations in
Hamilton andNanticoke , make capital investments of at leastC over the next three years, and plans to increase steel production over current levels from those facilities;$60 million -
Stelco will maintain significant employment levels in
Canada and Canadian representation on the management team; - Recognizing the importance of Stelco’s operations to the businesses in the region, Cliffs will ensure existing local supplier arrangements are maintained;
- Cliffs values and will continue Stelco’s collaboration with McMaster University and CanmetMATERIALS and will maintain the existing research chairs with McMaster University;
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Cliffs respects Stelco’s commitment to charitable and community support and will build on that legacy by increasing the overall charitable support by
C per year, to be directed by Stelco’s management team;$2 million -
Cliffs will continue Stelco’s partnership with the Hamilton Tiger-Cats and Forge FC and will maintain its
40% equity interest and the master lease of Tim Hortons Field. The community engagement program, including the Tiger-Cats High School Mentorship Program, will also be maintained; and - Cliffs is committed to operating the business and approaching sustainability in a way that supports the United Nations’ Sustainable Development Goals (UN SDGs) and will ensure the Canadian operations operate in accordance with the Company’s sustainability priorities.
David McCall, International President of the United Steelworkers, stated: “On behalf of our entire membership, I am excited for this transaction and proud to support a deal that is great for the resilience of manufacturing and Union jobs in
Advisors and Counsel
BMO Capital Markets is acting as financial advisor to Stelco, and McCarthy Tétrault LLP and A&O Shearman are serving as legal counsel to Stelco. In addition, RBC Capital Markets is acting as financial advisor and Stikeman Elliott LLP as legal counsel to the Special Committee of Stelco’s Board of Directors.
Wells Fargo, J.P. Morgan and Moelis & Company LLC are acting as financial advisors to Cliffs. Davis Polk & Wardwell LLP and Blake, Cassels & Graydon LLP are serving as legal counsel to Cliffs. In addition, Wells Fargo Bank, N.A. and J.P. Morgan have provided full underwritten financing commitments and are backstopping Cliffs’ existing ABL Facility.
About Stelco
Stelco is a low cost, integrated and independent steelmaker with one of the newest and most technologically advanced integrated steelmaking facilities in
About Cleveland-Cliffs
Cleveland-Cliffs is the largest flat-rolled steel producer in
Forward-Looking Information
This release includes “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. Forward-looking statements include, but are not limited to, statements with respect to the rationale of the Board for entering into the Arrangement Agreement, the terms and conditions of the Arrangement Agreement, the premium to be received by shareholders, the attractiveness of the Transaction from a financial point of view, the complementarity and compatibility of Stelco’s business with Cliffs’ existing business, the expected benefits of the Transaction, the intended success of Cliffs’ initiatives to benefit
In some cases, but not necessarily in all cases, forward-looking statements can be identified by the use of forward-looking terminology such as “plans,” “targets,” “expects” or “does not expect,” “is expected,” “an opportunity exists,” “is positioned,” “estimates,” “intends,” “assumes,” “anticipates” or “does not anticipate” or “believes,” or variations of such words and phrases or state that certain actions, events or results “may,” “could,” “would,” “might,” “will” or “will be taken,” “occur” or “be achieved.” In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking statements. Forward-looking statements are not historical facts, nor guarantees or assurances of future performance but instead represent management’s current beliefs, expectations, estimates and projections regarding future events and operating performance. Forward-looking statements are necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this release, are subject to inherent uncertainties, risks and changes in circumstances that may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ, possibly materially, from those indicated by the forward-looking statements include, but are not limited to, the possibility that the proposed Transaction will not be completed on the terms and conditions, or on the timing, currently contemplated, or at all, the possibility of the Arrangement Agreement being terminated in certain circumstances, the ability of the Board to consider and approve a Superior Proposal for the Company, and the other risk factors identified under “Risk Factors” in the Company’s latest annual information form and management’s discussion and analysis for the year ended December 31, 2023 and in the management’s discussion and analysis for the period ended March 31, 2024, and in other periodic filings that the Company has made and may make in the future with the securities commissions or similar regulatory authorities in
Although the Company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other risk factors not currently known to us or that we currently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking statements. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, you should not place undue reliance on forward-looking statements. The forward-looking statements represent the Company’s expectations as of the date of this release (or as the date it is otherwise stated to be made) and are subject to change after such date. However, the Company disclaims any intention and undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable Canadian securities laws. All of the forward-looking statements contained in this release are expressly qualified by the foregoing cautionary statements.
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For Further Information
For investor enquiries: Paul D. Scherzer, Chief Financial Officer, (905) 577-4432, paul.scherzer@stelco.com
For media enquiries: Trevor Harris, Vice-President, Corporate Affairs, (905) 577-4447, trevor.harris@stelco.com
Source: Stelco Holdings Inc
FAQ
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