Combines complementary businesses across
mining, pelletizing and innovative manufacturing to create
vertically integrated producer of value-added iron ore and steel
products
Compelling financial profile with strong
balance sheet, expected earnings accretion, and strong free cash
flow generation to execute on long-term growth
opportunities
Combination creates significant value for
shareholders through realization of $120 million in annual
cost synergies
Cleveland-Cliffs Inc. (NYSE: CLF) and AK Steel Holding
Corporation (NYSE: AKS) are pleased to announce that they have
entered into a definitive merger agreement pursuant to which Cliffs
will acquire all of the issued and outstanding shares of AK Steel
common stock. Lourenco Goncalves, Chairman of the Board, President
and CEO of Cliffs, will lead the expanded organization.
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Under the terms of the merger agreement, AK Steel shareholders
will receive 0.40 shares of Cliffs common stock for each
outstanding share of AK Steel common stock they own. Upon
completion of the transaction, Cliffs shareholders will own
approximately 68% and AK Steel shareholders will own approximately
32% of the combined company, respectively, on a fully diluted
basis.
The fixed exchange ratio implies a consideration of $3.36 per
share of AK Steel common stock and represents a premium of 16%
based on the closing share prices of Cliffs and AK Steel common
shares, respectively, as of December 2, 2019, and a premium of 27%
based on the 30-day volume weighted average price of AK Steel
common shares. The transaction implies an aggregate consideration
to AK Steel shareholders of approximately $1.1 billion on a fully
diluted basis, a total enterprise value of approximately $3.0
billion for AK Steel and an acquisition multiple of 5.6x LTM
Adjusted EBITDA.
The transaction will combine Cliffs, North America’s largest
producer of iron ore pellets, with AK Steel, a leading producer of
innovative flat-rolled carbon, stainless and electrical steel
products, to create a vertically integrated producer of value-added
iron ore and steel products. The combined company will be ideally
positioned to provide high-value iron ore and steel solutions to
customers primarily across North America.
Mr. Goncalves stated: “We are excited to be able to deliver real
value to the shareholders of both Cliffs and AK Steel through a
value enhancing and leverage-neutral transaction. By combining the
best-in-class quality of AK Steel’s assets and its enviable product
mix with Cliffs’ debt profile and proven management team, we are
creating a premier North American company, self-sufficient in iron
ore pellets and geared toward high value-added steel products.”
He continued, “The pro forma Cliffs will be a vertically
integrated steel company that is expected to drive improved
profitability for existing Cliffs and AK Steel shareholders and is
well-positioned to serve both the blast furnace and electric arc
furnace segments. In addition, Cliffs’ existing strong balance
sheet and self-sufficiency in pellets for the combined company
provide flexibility to pursue additional growth opportunities,
including the potential future utilization of the blast furnace in
Ashland to produce merchant pig iron, an opportunity neither
company could pursue on a standalone basis.”
Mr. Goncalves concluded, “For Cliffs, we expect to realize
immediate growth and a long-desired objective of a more diverse
customer base, as well as more predictable cash flow generation due
to the contracted nature of AK Steel’s sales of high-end automotive
steel. Our track record of providing high-grade iron ore combined
with AK Steel’s recognized ability to produce the highest quality
steel grades, creates a highly complementary and compelling
business model. We look forward to welcoming the AK Steel team into
our organization and creating a unique company focused on executing
value-enhancing opportunities for all of our stakeholders.”
Roger K. Newport, CEO of AK Steel, added, “We believe this
transaction is a compelling opportunity for AK Steel shareholders
to participate in the substantial upside potential of what will be
a premier vertically integrated producer of value-added iron ore
and steel products with significant scale and diversification. Our
shareholders will benefit from exposure to a larger, more
diversified company that is better positioned to capitalize on
growth opportunities. The combination of Cliffs’ iron ore pellet
capabilities and our innovative, high-quality steel product
development and production is strategically compelling. Together,
we expect to be able to take advantage of growth opportunities
faster and more fully than either company could on its own. With AK
Steel’s 120-year heritage, which began in Ohio, and expertise in
steelmaking, AK Steel and Cliffs make an excellent combination,
which we expect will facilitate a smooth integration process.”
Key Strategic & Financial Benefits
- Brings together complementary businesses to create company
with full suite of value-added products: The combination will
create significant opportunities to generate additional value from
market trends across the entire steel value chain and enable more
consistent, predictable performance through market cycles. The
integrated supply chain provides AK Steel self-sufficiency in iron
ore supply. Together, Cliffs and AK Steel will have a presence
across the entire manufacturing process, from mining to pelletizing
to the development and production of finished high value steel
products, including Next Generation Advanced High Strength Steels
for automotive and other markets.
- Solidifies demand for Cliffs’ pellet offtake, with potential
for growth into merchant pig iron: The combined company will
ensure pellet volume commitments to AK Steel’s blast furnaces along
with Cliffs’ Toledo hot briquetted iron facility, to complement its
existing long-term minimum volume pellet offtake agreements with
other key integrated steel producers. Further, the potential
startup of pig iron manufacturing at AK Steel’s facility in
Ashland, Kentucky would create future opportunities for pellet
demand and more metallics products without significant additional
capital expenditures.
- Accretion through significant annual synergies: The
transaction offers significant potential for operational synergies,
which will contribute to long-term value creation for investors.
The combination is expected to generate approximately $120 million
of annual cost synergies to be fully realized within the first 12
months after closing, primarily from consolidating corporate
functions, reducing duplicative overhead costs, and procurement and
energy cost savings, as well as operational and supply chain
efficiencies.
- Stronger company with compelling pro forma financial
metrics: The combined company is expected to benefit from a
larger and more diversified base of customers, with less overall
emphasis on commodity-linked contracts. For the last twelve months,
the pro forma combined company has generated net revenue of $8.2
billion1, Adjusted EBITDA of $1.3 billion2 and unlevered free cash
flow of $923 million2,3. The transaction will also be
leverage-neutral with pro forma Total Debt to Adjusted EBITDA of
3.5x.
Additional Transaction Details & Governance
Following completion of the transaction, with Mr. Goncalves
leading the expanded organization, Mr. Newport will retire as CEO
and a Director of AK Steel. Three existing members of AK Steel’s
Board of Directors will join the Cliffs Board, and two existing
Cliffs Board members will step down, bringing the Cliffs Board to
12 members in total. AK Steel will become a direct, wholly-owned
subsidiary of Cliffs and will retain its branding and corporate
identity. Cliffs will continue to be listed on the NYSE with its
headquarters in Cleveland, while maintaining a significant presence
at AK Steel’s current offices in West Chester, Ohio along with its
Research and Innovation Center in Middletown, Ohio.
The transaction is expected to close in the first half of 2020,
subject to approval by the shareholders of both companies, receipt
of regulatory approvals and satisfaction of other customary closing
conditions.
Cliffs has obtained an approximately $2 billion financing
commitment from Credit Suisse in connection with a new Asset Backed
Loan and the refinancing of AK Steel’s 2023 senior secured
notes.
Advisors and Counsel
Moelis & Company LLC and Credit Suisse are acting as
financial advisors to Cliffs and Jones Day is serving as legal
counsel. Goldman Sachs & Co. LLC is acting as financial advisor
to AK Steel and Weil, Gotshal & Manges LLP is serving as legal
counsel.
Board of Directors’ Recommendation
The transaction has been unanimously approved by both companies’
Boards, and both Boards recommend that their respective
shareholders vote in favor of the transaction.
Joint Conference Call & Webcast Information
Cleveland-Cliffs and AK Steel will conduct a live conference
call and webcast on December 3, 2019 at 8:30 a.m. Eastern Time. The
call will be broadcast live and archived on Cliffs' website at
www.clevelandcliffs.com and on AK Steel’s website at
www.aksteel.com. Presentation slides will also be available on the
webcast link and on both companies’ Investor Relations pages on
their websites, as well as through the joint transaction website at
www.clevelandcliffsaksteel.acquisitionannouncement.com.
About Cleveland-Cliffs
Founded in 1847, Cleveland-Cliffs is the largest and oldest
independent iron ore mining company in the United States. The
company is a major supplier of iron ore pellets to the North
American steel industry from its mines and pellet plants located in
Michigan and Minnesota. By 2020, Cleveland-Cliffs expects to be the
sole producer of hot briquetted iron (HBI) in the Great Lakes
region with the development of its first production plant in
Toledo, Ohio. Driven by the core values of safety, social,
environmental and capital stewardship, Cleveland-Cliffs’ employees
endeavor to provide all stakeholders with operating and financial
transparency. For more information, visit
http://www.clevelandcliffs.com.
About AK Steel
AK Steel is a leading producer of flat-rolled carbon, stainless
and electrical steel products, primarily for the automotive,
infrastructure and manufacturing, including electrical power, and
distributors and converters markets. Through its subsidiaries, the
company also provides customer solutions with carbon and stainless
steel tubing products, hot- and cold-stamped components, and die
design and tooling. Headquartered in West Chester, Ohio (Greater
Cincinnati), the company has approximately 9,500 employees at
manufacturing operations in the United States, Canada and Mexico,
and facilities in Western Europe. Additional information about AK
Steel is available at www.aksteel.com.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This communication contains “forward-looking statements” within
the meaning of the federal securities laws, including Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
In this context, forward-looking statements often address expected
future business and financial performance and financial condition,
and often contain words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “would,” “target” and similar
expressions, as well as variations or negatives of these words.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain, such as statements about the
consummation of the proposed transaction and the anticipated
benefits thereof. These and other forward-looking statements
reflect AKS’s and CLF’s current beliefs and judgments and are not
guarantees of future results or outcomes. Forward-looking
statements are based on assumptions and estimates that are
inherently affected by economic, competitive, regulatory, and
operational risks and uncertainties and contingencies that may be
beyond AKS’s or CLF’s control. They are also subject to inherent
risks and uncertainties that could cause actual results or
performance to differ materially from those expressed in any
forward-looking statements. Important risk factors that may cause
such a difference include (i) the completion of the proposed
transaction on the anticipated terms and timing or at all,
including obtaining shareholder and regulatory approvals and
anticipated tax treatment, (ii) potential unforeseen liabilities,
future capital expenditures, revenues, expenses, earnings, economic
performance, indebtedness, financial condition, losses and future
prospects, (iii) the ability of CLF to integrate its and AKS’s
businesses successfully and to achieve anticipated synergies, (iv)
business and management strategies for the management, expansion
and growth of the combined company’s operations following the
consummation of the proposed transaction, (v) potential litigation
relating to the proposed transaction that could be instituted
against AKS, CLF or their respective directors, (vi) the risk that
disruptions from the proposed transaction will harm AKS’ or CLF’s
business, including current plans and operations, (vii) the ability
of AKS or CLF to retain and hire key personnel, (viii) potential
adverse reactions or changes to business relationships resulting
from the announcement or completion of the proposed transaction,
(ix) uncertainty as to the long-term value of CLF’s common stock,
(x) continued availability of capital and financing and rating
agency actions, (xi) legislative, regulatory and economic
developments and (xii) unpredictability and severity of
catastrophic events, including acts of terrorism or outbreak of war
or hostilities, as well as management’s response to any of the
aforementioned factors. These risks, as well as other risks
associated with the proposed transaction, will be more fully
discussed in the joint proxy statement/prospectus that will be
included in the registration statement on Form S-4 that will be
filed with the SEC in connection with the proposed transaction.
While the list of factors presented here is, and the list of
factors to be presented in the registration statement on Form S-4
are, considered representative, no such list should be considered
to be a complete statement of all potential risks and
uncertainties. Other factors that may present significant
additional obstacles to the realization of forward looking
statements or which could have a material adverse effect on AKS’ or
CLF’s respective consolidated financial condition, results of
operations, credit rating or liquidity are contained in AKS’s and
CLF’s respective periodic reports filed with the SEC, including the
AKS 10-K and CLF 10-K. Neither AKS nor CLF assumes any obligation
to publicly provide revisions or updates to any forward looking
statements, whether as a result of new information, future
developments or otherwise, should circumstances change, except as
otherwise required by applicable law.
IMPORTANT INFORMATION ABOUT THE TRANSACTION AND WHERE TO FIND
IT
In connection with the proposed transaction involving AK Steel
Holding Corporation (“AKS”) and Cleveland-Cliffs Inc. (“CLF”), CLF
will file with the Securities and Exchange Commission (the “SEC”) a
registration statement on Form S-4 that will include a joint proxy
statement of AKS and CLF, which also constitutes a prospectus of
CLF. AKS and CLF may also file other documents with the SEC
regarding the proposed transaction. This document is not a
substitute for the joint proxy statement/prospectus or registration
statement or any other document that AKS or CLF may file with the
SEC. The definitive joint proxy statement/prospectus will be sent
to the shareholders of AKS and the shareholders of CLF. INVESTORS
AND SECURITYHOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT,
THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS WELL AS
ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN
THEIR ENTIRETY BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION AND RELATED MATTERS.
Investors and securityholders may obtain free copies of the
registration statement and the joint proxy statement/prospectus
(when available) and other documents filed with the SEC by AKS or
CLF through the web site maintained by the SEC at www.sec.gov.
Documents filed with the SEC by AKS will also be available free of
charge on the AKS website at www.aksteel.com or by contacting AKS’s
investor relations department. Documents filed with the SEC by CLF
will also be available free of charge on CLF’s website at
clevelandcliffs.com or by contacting CLF’s investor relations
department:
AK Steel
Cleveland-Cliffs
513-425-5215
216-694-5700
PARTICIPANTS IN THE SOLICITATION
AKS, CLF and certain of their respective directors and executive
officers may be deemed to be participants in the solicitation of
proxies in respect of the proposed transaction. Information
regarding AKS’ directors and executive officers, including a
description of their direct interests, by security holdings or
otherwise, is set forth in AKS’ Form 10-K for the fiscal year ended
December 31, 2018, filed with the SEC on February 15, 2019 (the
“AKS 10-K”), and its proxy statement filed with the SEC on April
10, 2019. Information regarding CLF’s directors and executive
officers, including a description of their direct interests, by
security holdings or otherwise, is set forth in CLF’s Form 10-K for
the fiscal year ended December 31, 2018, filed with the SEC on
February 8, 2019 (the “CLF 10-K”), and its proxy statement filed
with the SEC on March 12, 2019. Additional information regarding
the interests of these participants and other persons who may be
deemed participants in the proposed transaction may be obtained by
reading the joint proxy statement/prospectus and other relevant
materials to be filed with the SEC when such materials become
available. Free copies of these documents may be obtained from the
sources indicated above.
NO OFFER OR SOLICITATION
This communication is not intended to and shall not constitute
an offer to sell or the solicitation of an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote of approval, nor shall there be any sale of securities in
any jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offer of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
______________________ 1 Pro forma LTM numbers exclude
intercompany sales, which are calculated based on 25% of revenue,
per Cleveland-Cliffs and AK Steel’s 2018 10-Ks. 2 Pro forma numbers
include $120 million in anticipated synergies and utilizes each
companies’ respective methodologies of calculating Adj. EBITDA. 3
Defined as Adj. EBITDA – Capex. Excludes HBI-related 9/30/2019 LTM
capex of $415m, per Cliffs’ filings.
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Cleveland-Cliffs Investor Relations: Paul Finan Director,
Investor Relations (216) 694-6544
Media: Patricia Persico Director, Corporate Communications (216)
650-0168
AK Steel Investor Relations: Douglas O. Mitterholzer
General Manager, Investor Relations (513) 425-5215
Media: Lisa H. Jester Corporate Manager, Communications and
Public Relations (513) 425-2510
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