Securities Registration: Business Combination (s-4)

Date : 01/08/2020 @ 10:26PM
Source : Edgar (US Regulatory)
Stock : Cleveland Cliffs Inc (CLF)
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Securities Registration: Business Combination (s-4)

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As filed with the Securities and Exchange Commission on January 8, 2020

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CLEVELAND-CLIFFS INC.

(Exact name of registrant as specified in its charter)

 

 

 

Ohio   1000   34-1464672

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

200 Public Square, Suite 3300

Cleveland, Ohio 44114-2315

Telephone: (216) 694-5700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

James D. Graham

Executive Vice President, Chief Legal Officer & Secretary

Cleveland-Cliffs Inc.

200 Public Square, Suite 3300

Cleveland, Ohio 44114-2315

Telephone: (216) 694-5700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With a copy to:

 

James P. Dougherty, Esq.

Benjamin L. Stulberg, Esq.

Michael J. Solecki, Esq.

Jones Day

901 Lakeside Avenue

Cleveland, Ohio 44114

(216) 586-3939

 

Joseph C. Alter

Vice President, General Counsel and

Corporate Secretary

AK Steel Holding Corporation

9227 Centre Pointe Drive

West Chester, Ohio 45069

(513) 425-5000

 

Raymond O. Gietz, Esq.

Amanda Fenster, Esq.

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, New York 10153

(212) 310-8000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and upon completion of the proposed merger described in the enclosed joint proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to Be Registered

 

Amount

to be

Registered(1)

 

Proposed

Maximum

Offering Price

Per Unit

 

Proposed

Maximum

Aggregate

Offering Price(2)

 

Amount of

Registration Fee(3)

Common shares, par value $0.125 per share

 

133,135,043

  N/A   $1,031,796,585   $133,927.20

 

 

(1)

Represents the estimated maximum number of common shares, par value $0.125 per share, of Cleveland-Cliffs Inc. (“Cliffs”) issuable upon completion of the merger described in the joint proxy statement/prospectus contained herein, calculated as the product of (a) the sum of (i) 316,466,553 shares of common stock, $0.01 par value per share (“AK Steel common stock”), of AK Steel Holding Corporation (“AK Steel”), issued and outstanding as of January 3, 2020 (excluding shares held by Cliffs, Merger Sub and AK Steel, other than shares held on behalf of third parties), (ii) 11,015,962 shares of AK Steel common stock associated with stock-based equity awards (other than stock options and already outstanding restricted securities) outstanding as of January 3, 2020 or that may be granted after January 3, 2020 and prior to the completion of the merger and (iii) 5,355,093 shares of AK Steel common stock underlying AK Steel stock options outstanding as of January 3, 2020 or that may be granted after January 3, 2020 and prior to the completion of the merger, multiplied by (b) 0.400 (the exchange ratio in the merger).

(2)

Pursuant to Rule 457(c) and Rule 457(f)(1) promulgated under the Securities Act of 1933 (the “Securities Act”) and solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act, the proposed maximum aggregate offering price is equal to the product of (x) $3.10 (the average of the high and low per share prices of AK Steel common stock on the New York Stock Exchange on January 3, 2020) multiplied by (y) 332,837,608 (the estimated maximum number of shares of AK Steel common stock that may be exchanged for the merger consideration).

(3)

Computed in accordance with Rule 457(f) under the Securities Act to be $133,927.20 (which is equal to 0.00012980 multiplied by the proposed maximum aggregate offering price of 1,031,796,585).

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information contained herein, including in the accompanying joint proxy statement/prospectus is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This document is not an offer to sell these securities and does not constitute the solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED JANUARY 8, 2020

 

 

LOGO    LOGO

Dear Shareholders and Stockholders:

As previously announced, on December 2, 2019, Cleveland-Cliffs Inc., which is referred to as Cliffs, AK Steel Holding Corporation, which is referred to as AK Steel, and Pepper Merger Sub Inc., which is referred to as Merger Sub, entered into an Agreement and Plan of Merger, which is referred to as the Merger Agreement, providing for Cliffs’ acquisition of AK Steel. Under the terms of the Merger Agreement, Merger Sub will merge with and into AK Steel, which is referred to as the Merger, and AK Steel will survive the Merger and become a direct, wholly owned subsidiary of Cliffs. Cliffs shareholders as of the close of business on [                ], 2020, the record date, are invited to attend a special meeting of Cliffs shareholders, to be held on [                ], 2020, at [                ] Eastern Time, to consider and vote on a proposal to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of common shares, par value $0.125 per share, of Cliffs, which are referred to as Cliffs common shares, in connection with the Merger as well as a proposal regarding the potential adjournment of the Cliffs special meeting. AK Steel stockholders as of the close of business on the record date are invited to attend a special meeting of AK Steel stockholders, to be held on [                ], 2020, at [                ] Eastern Time, to consider and vote on a proposal to adopt the Merger Agreement as well as proposals regarding certain other matters related to the Merger and the AK Steel special meeting.

If the Merger is completed, each share of common stock, par value $0.01 per share, of AK Steel, which is referred to as AK Steel common stock, issued and outstanding immediately prior to the effective time of the Merger (other than AK Steel restricted shares and any shares of AK Steel common stock owned by Cliffs, Merger Sub or AK Steel, unless held on behalf of third parties) will be converted into the right to receive 0.400 Cliffs common shares, which is referred to as the merger consideration, and, if applicable, cash in lieu of any fractional shares. For more details on the merger consideration, see the section entitled “The Merger—Consideration to AK Steel Stockholders” beginning on page [    ] of the accompanying joint proxy statement/prospectus.

The market value of the merger consideration will fluctuate with the market price of Cliffs common shares and will not be known at the time both Cliffs shareholders and AK Steel stockholders vote on the Merger. Based on the closing share price of Cliffs common shares on the New York Stock Exchange, which is referred to as the NYSE, on December 2, 2019, the last full trading day before the public announcement of the Merger Agreement, of $8.41 per share, the implied value of the merger consideration to AK Steel stockholders was approximately $3.36 per share of AK Steel common stock. On January 3, 2020, the last practicable trading day before the date of the filing of the accompanying joint proxy statement/prospectus, the closing share price of Cliffs common shares on the NYSE was $7.82 per share, resulting in an implied value to AK Steel stockholders of $3.13 per share of AK Steel common stock. We urge you to obtain current market quotations for Cliffs common shares and AK Steel common stock.

Cliffs common shares are traded on the NYSE under the symbol “CLF,” and AK Steel common stock is traded on the NYSE under the symbol “AKS.” Cliffs expects to issue approximately 133.1 million Cliffs common shares to AK Steel stockholders in the Merger (including shares underlying AK Steel equity awards expected to be outstanding at the effective time of the Merger, which will be converted into awards with respect to Cliffs common shares). Based on the number of shares of AK Steel common stock and Cliffs common shares outstanding as of January 3, 2020, we estimate that, immediately following completion of the Merger, former holders of AK Steel common stock will own approximately 32% of the outstanding Cliffs common shares.

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Assuming the Merger qualifies as a reorganization, a stockholder of AK Steel generally will not recognize any gain or loss upon receipt of Cliffs common shares in the Merger, and will recognize gain or loss with respect to any cash received in lieu of a fractional Cliffs


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common share, as discussed in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [    ] of the accompanying joint proxy statement/prospectus.

Each of Cliffs and AK Steel will hold a special meeting of its shareholders or stockholders, as applicable, to consider certain matters relating to the proposed Merger, as well as certain other matters. Cliffs and AK Steel cannot complete the proposed Merger unless, among other things, Cliffs shareholders approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger, and AK Steel stockholders adopt the Merger Agreement.

Your vote is very important. To ensure your representation at your company’s special meeting, please complete and return the enclosed proxy card or submit your proxy via the Internet or by telephone. Please vote promptly whether or not you expect to attend your company’s special meeting. Submitting a proxy now will not prevent you from being able to vote in person at your company’s special meeting if you are otherwise eligible to vote at such meeting.

The Cliffs board of directors has unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger, are in the best interests of Cliffs and its shareholders; has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger; and unanimously recommends that Cliffs shareholders vote “FOR” the proposal to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger, and “FOR” the adjournment proposal, as described in the accompanying joint proxy statement/prospectus.

The AK Steel board of directors has unanimously determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are advisable and in the best interests of AK Steel and its stockholders; has unanimously approved the Merger Agreement; and unanimously recommends that AK Steel stockholders vote “FOR” the proposal to adopt the Merger Agreement and “FOR” each of the other proposals at the AK Steel special meeting, as described in the accompanying joint proxy statement/prospectus.

The obligations of Cliffs and AK Steel to complete the Merger are subject to the satisfaction or waiver (if permitted) of the conditions set forth in the Merger Agreement, a copy of which is included as part of the accompanying joint proxy statement/prospectus. The accompanying joint proxy statement/prospectus provides you with detailed information about the proposed Merger and the transactions contemplated by the Merger Agreement. It also contains or references information about Cliffs and AK Steel and certain related matters. You are encouraged to read the accompanying joint proxy statement/prospectus carefully and in its entirety.

In particular, you should carefully read the section entitled “Risk Factors” beginning on page [    ] of the accompanying joint proxy statement/prospectus for a discussion of risks you should consider in evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger and how they will affect you.

We look forward to the successful completion of the Merger.

 

Lourenco Goncalves

Chairman, President and Chief Executive Officer

Cleveland-Cliffs Inc.

  

Roger K. Newport

Chief Executive Officer

AK Steel Holding Corporation                

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger, the adoption of the Merger Agreement, the Cliffs common shares to be issued in connection with the Merger or any other transactions described in the accompanying joint proxy statement/prospectus, or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

This document is dated [                ], 2020, and is first being mailed to Cliffs shareholders and AK Steel stockholders on or about [                ], 2020.


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CLEVELAND-CLIFFS INC. NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON [                ], 2020 AT [                ]

NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Cleveland-Cliffs Inc., which is referred to as Cliffs, will be held on [                ], 2020, at [                ] Eastern Time at [                ], for the following purposes:

 

   

to consider and vote on a proposal to approve the Merger Agreement (as defined below) and the transactions contemplated by the Merger Agreement, including the issuance of common shares, par value $0.125 per share, of Cliffs, which are referred to as Cliffs common shares, in connection with the Merger (as defined below), which is referred to as the Cliffs merger proposal; and

 

   

to consider and vote on a proposal to adjourn the Cliffs special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Cliffs special meeting to approve the Cliffs merger proposal, which is referred to as the Cliffs adjournment proposal.

Cliffs shareholders’ approval of the Cliffs merger proposal is required to complete the acquisition of AK Steel Holding Corporation, which is referred to as AK Steel, by Cliffs by way of the merger of Pepper Merger Sub Inc., which is referred to as Merger Sub, with and into AK Steel, with AK Steel continuing as the surviving corporation and as a direct, wholly owned subsidiary of Cliffs, which is referred to as the Merger, pursuant to the Agreement and Plan of Merger, dated as of December 2, 2019, among Cliffs, AK Steel and Merger Sub, which, as such agreement may be amended from time to time, is referred to as the Merger Agreement. If necessary, Cliffs shareholders will be asked to approve the Cliffs adjournment proposal. Cliffs does not intend to transact any other business at the Cliffs special meeting. The record date for the Cliffs special meeting has been set as [                ], 2020. Only Cliffs shareholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the Cliffs special meeting or any adjournments and postponements thereof. For additional information, see the section entitled “Special Meeting of Cliffs Shareholders” beginning on page [    ] of the joint proxy statement/prospectus accompanying this notice.

The Cliffs board of directors unanimously recommends that you vote “FOR” the Cliffs merger proposal and “FOR” the Cliffs adjournment proposal.

The Cliffs special meeting proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the Merger Agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE CLIFFS SPECIAL MEETING. IF YOU DESIRE AT A LATER TIME TO REVOKE OR CHANGE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, USE OF THE PROXY AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.

 

Your vote is important. Approval of the Cliffs merger proposal by the Cliffs shareholders is a condition to the Merger and requires the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. Cliffs shareholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes electronically via the Internet or by telephone. Simply follow the instructions provided on the enclosed proxy card. The failure to submit a proxy card or to vote in person at the Cliffs special meeting or the abstention from voting by Cliffs shareholders, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Cliffs merger proposal, will have the same effect as a vote “AGAINST” the Cliffs merger proposal.

 

    BY ORDER OF THE BOARD OF DIRECTORS,
   

James D. Graham

    Executive Vice President, Chief Legal Officer & Secretary
    Cleveland-Cliffs Inc.
Cleveland, Ohio      
[                ], 2020      


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AK STEEL HOLDING CORPORATION

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [                ], 2020

AT [                ]

 

 

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of AK Steel Holding Corporation, which is referred to as AK Steel, will be held on [                ], 2020, at [                ], Eastern Time, at [                ], which is referred to as the AK Steel special meeting, for the following purposes:

 

   

to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of December 2, 2019, which, as such agreement may be amended from time to time, is referred to as the Merger Agreement, among Cleveland-Cliffs Inc., AK Steel and Pepper Merger Sub Inc., which is referred to as the AK Steel merger proposal;

 

   

to consider and vote on a non-binding, advisory proposal to approve the compensation that may be paid or become payable to AK Steel’s named executive officers that is based on or otherwise relates to the merger contemplated by the Merger Agreement, which is referred to as the AK Steel compensation proposal; and

 

   

to consider and vote on a proposal to adjourn the AK Steel special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the AK Steel special meeting to approve the AK Steel merger proposal, which is referred to as the AK Steel adjournment proposal.

Approval of the AK Steel merger proposal is required to complete the merger and other transactions contemplated by the Merger Agreement. AK Steel stockholders will also be asked to approve, by an advisory, non-binding vote, the AK Steel compensation proposal and, if necessary, the AK Steel adjournment proposal. AK Steel does not intend to transact any other business at the AK Steel special meeting. The record date for the AK Steel special meeting has been set as [                ], 2020. Only AK Steel stockholders of record as of the close of business on such record date are entitled to notice of, and to vote at, the AK Steel special meeting or any adjournments and postponements thereof. For additional information, see the section entitled “Special Meeting of AK Steel Stockholders” beginning on page [    ] of the joint proxy statement/prospectus accompanying this notice.

The AK Steel board of directors unanimously recommends that you vote “FOR” the AK Steel merger proposal, “FOR” the AK Steel compensation proposal and “FOR” the AK Steel adjournment proposal.

The AK Steel special meeting proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before you vote. A copy of the Merger Agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

PLEASE VOTE AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE AK STEEL SPECIAL MEETING. IF YOU DESIRE AT A LATER TIME TO CHANGE YOUR VOTE OR REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FOR FURTHER INFORMATION CONCERNING THE PROPOSALS BEING VOTED UPON, HOW TO VOTE AND OTHER RELATED MATTERS, YOU ARE URGED TO READ THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.


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Your vote is important. Approval of the AK Steel merger proposal by the AK Steel stockholders is a condition to completing the merger and other transactions contemplated by the Merger Agreement and requires the affirmative vote of holders of a majority of the outstanding shares of AK Steel common stock entitled to vote on the proposal. AK Steel stockholders are requested to complete, date, sign and return the enclosed proxy in the envelope provided, which requires no postage if mailed in the United States, or to submit their votes electronically via the Internet or by telephone. Simply follow the instructions provided on the enclosed proxy card. The failure to submit a proxy card or to vote in person at the AK Steel special meeting or the abstention from voting by AK Steel stockholders, or the failure of any AK Steel stockholder who holds shares of AK Steel common stock in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the AK Steel merger proposal, will have the same effect as a vote “AGAINST” the AK Steel merger proposal.

 

    BY ORDER OF THE BOARD OF DIRECTORS,
   

Joseph C. Alter

    Vice President, General Counsel and
Corporate Secretary
    AK Steel Holding Corporation
West Chester, Ohio      
[                ], 2020      


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REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Cleveland-Cliffs Inc., which is referred to as Cliffs, and AK Steel Holding Corporation, which is referred to as AK Steel, from other documents that Cliffs and AK Steel have filed with the Securities and Exchange Commission, which is referred to as the SEC, and that are not contained herein or delivered herewith. For a listing of documents incorporated by reference herein and additional information on how you can obtain copies of these documents free of charge from Cliffs or AK Steel (as applicable), please see the section entitled “Where You Can Find More Information” beginning on page [    ]. This information is also available for you to review free of charge through the SEC’s website at www.sec.gov.

This joint proxy statement/prospectus is first being mailed to Cliffs shareholders and AK Steel stockholders on or about [                ], 2020.

You may request copies of this joint proxy statement/prospectus and any of the documents incorporated by reference herein without charge upon written or oral request to the applicable company’s principal executive office. The respective addresses and telephone numbers of such principal executive offices are listed below.

 

For Cliffs Shareholders:    For AK Steel Stockholders:

Cleveland-Cliffs Inc.

200 Public Square, Suite 3300

Cleveland, OH 44114

Attention: Investor Relations

1-800-214-0739

  

AK Steel Holding Corporation

9227 Centre Pointe Drive

West Chester, OH 45069

Attention: Investor Relations

1-513-425-5000

To obtain timely delivery of these documents before Cliffs’ special meeting of shareholders, Cliffs shareholders must request the information no later than [                ], 2020, which is five business days before the date of the Cliffs special meeting.

To obtain timely delivery of these documents before AK Steel’s special meeting of stockholders, AK Steel stockholders must request the information no later than [                ], 2020, which is five business days before the date of the AK Steel special meeting.

In addition, if you have questions about the Merger or this joint proxy statement/prospectus or would like additional copies of the joint proxy statement/prospectus, please contact the appropriate company at the contact listed above. You will not be charged for any of the documents that you request.

If you have any questions about the Cliffs special meeting or the AK Steel special meeting, or need to obtain proxy cards or other information related to the proxy solicitation, please contact the applicable company’s proxy solicitor set forth below:

 

CLIFFS PROXY SOLICITOR    AK STEEL PROXY SOLICITOR

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

 

Banks and brokers call: +1-212-297-0720

Shareholders and all others call toll-free:

+ 1-877-869-0171

Email: info@okapipartners.com

  

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

 

Toll-free: +1-866-413-5899


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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Cliffs (Registration No. 333-[                ]), constitutes a prospectus of Cliffs under Section 5 of the Securities Act of 1933, as amended, which is referred to as the Securities Act, with respect to the common shares, par value $0.125 per share, of Cliffs, which are referred to as Cliffs common shares, to be issued to AK Steel stockholders pursuant to the Agreement and Plan of Merger, dated as of December 2, 2019, which, as such agreement may be amended from time to time, is referred to as the Merger Agreement, among Cliffs, AK Steel and Pepper Merger Sub Inc., which is referred to as Merger Sub, providing for Cliffs’ acquisition of AK Steel by way of the merger of Merger Sub with and into AK Steel, with AK Steel continuing as the surviving corporation and as a direct, wholly owned subsidiary of Cliffs, which is referred to as the Merger. This document also constitutes a proxy statement of each of Cliffs and AK Steel under Section 14(a) of the Securities Exchange Act of 1934, as amended, which is referred to as the Exchange Act.

Cliffs has supplied all information contained in or incorporated by reference herein relating to Cliffs and Merger Sub, and AK Steel has supplied all information contained in or incorporated by reference herein relating to AK Steel. Cliffs and AK Steel have both contributed to the information relating to the Merger Agreement and related transactions contained in this joint proxy statement/prospectus.

You should rely only on the information contained in or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy, or any investment decision in connection with the Merger. Cliffs and AK Steel have not authorized anyone to provide you with information that is different from that contained in or incorporated by reference herein. This joint proxy statement/prospectus is dated [                ], 2020, and you should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document. Neither the mailing of this joint proxy statement/prospectus to Cliffs shareholders or AK Steel stockholders nor the issuance of Cliffs common shares pursuant to the Merger Agreement will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

     1  

SUMMARY

     16  

Information About the Companies

     16  

The Merger and the Merger Agreement

     17  

Recommendation of the Cliffs Board

     17  

Recommendation of the AK Steel Board

     17  

Opinions of Financial Advisors

     17  

Special Meeting of Cliffs Shareholders

     18  

Special Meeting of AK Steel Stockholders

     19  

Directors of Cliffs Following the Merger

     21  

Interests of AK Steel Directors and Executive Officers in the Merger

     21  

Conditions to the Completion of the Merger

     21  

No-Solicitation by Cliffs or AK Steel

     23  

Changes of Recommendation

     24  

Termination

     26  

Termination Fees

     28  

Regulatory Approvals

     29  

No Appraisal Rights

     30  

Material U.S. Federal Income Tax Consequences of the Merger

     30  

Comparison of Stockholders’ and Shareholders’ Rights

     30  

Selected Historical Consolidated Financial Data of Cliffs

     31  

Selected Historical Consolidated Financial Data of AK Steel

     34  

Selected Unaudited Pro Forma Condensed Combined Financial Data

     36  

Comparative Historical and Unaudited Pro Forma Per Share Financial Data

     38  

Market and Dividend Information; Implied Value of Merger Consideration

     40  

RISK FACTORS

     42  

Risks Relating to the Merger

     42  

Risks Relating to Cliffs’ Business

     52  

Risks Relating to AK Steel’s Business

     52  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     53  

INFORMATION ABOUT THE COMPANIES

     55  

SPECIAL MEETING OF CLIFFS SHAREHOLDERS

     56  

CLIFFS PROPOSALS

     61  

Cliffs Merger Proposal

     61  

Cliffs Adjournment Proposal

     61  

SPECIAL MEETING OF AK STEEL STOCKHOLDERS

     62  

AK STEEL PROPOSALS

     67  

AK Steel Merger Proposal

     67  

AK Steel Compensation Proposal

     67  

AK Steel Adjournment Proposal

     68  

THE MERGER

     69  

Transaction Structure

     69  

Consideration to AK Steel Stockholders

     69  

Background of the Merger

     69  

Recommendation of the Cliffs Board and Reasons for the Merger

     81  

Opinion of Moelis, Cliffs’ Financial Advisor

     84  

Recommendation of the AK Steel Board and Reasons for the Merger

     99  

Opinion of Goldman Sachs, AK Steel’s Financial Advisor

     103  

Unaudited Forecasted Financial Information

     111  

 

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TABLE OF CONTENTS

(continued)

 

     Page  

Funding of the Merger Expenses and Indebtedness Following the Merger

     119  

Regulatory Approvals

     119  

Appraisal Rights

     120  

Directors of Cliffs Following the Merger

     120  

Interests of AK Steel Directors and Executive Officers in the Merger

     120  

Indemnification and Insurance

     127  

Listing of Cliffs Shares; Delisting and Deregistration of AK Steel Shares

     128  

Accounting Treatment of the Merger

     128  

THE MERGER AGREEMENT

     129  

Explanatory Note Regarding the Merger Agreement

     129  

The Merger

     129  

Closing and Effective Time of the Merger

     129  

Merger Consideration

     130  

Treatment of Outstanding AK Steel Equity Awards in the Merger

     130  

Exchange Procedures

     132  

Termination of the Exchange Fund

     133  

Lost, Stolen or Destroyed Share Certificates

     133  

Adjustments to Prevent Dilution

     133  

Dividends and Distributions on Cliffs Common Shares

     133  

Withholdings

     134  

No Appraisal Rights

     134  

Organizational Documents; Directors and Officers

     134  

NYSE Listing; De-listing

     135  

Representations and Warranties

     135  

Interim Operations of AK Steel and Cliffs Pending the Merger

     138  

No-Solicitation of Acquisition Proposals; Changes of Recommendation

     143  

Special Meetings

     150  

Reasonable Best Efforts; Regulatory Filings and Other Actions

     151  

Employee Matters

     153  

Transaction Litigation

     155  

Access and Reports

     155  

Tax Treatment

     155  

Financing

     156  

Conditions to the Completion of the Merger

     156  

Termination

     158  

Expenses

     161  

Indemnification; Directors’ and Officers’ Insurance

     161  

Modification and Amendment; Waivers

     162  

Remedies

     162  

Governing Law

     162  

Jury Trial Waiver

     162  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     163  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     166  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     171  

DIRECTORS OF CLIFFS FOLLOWING THE MERGER

     182  

COMPARISON OF STOCKHOLDERS’ AND SHAREHOLDERS’ RIGHTS

     183  

APPRAISAL RIGHTS

     198  

 

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TABLE OF CONTENTS

(continued)

 

     Page  

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND DIRECTORS/EXECUTIVE OFFICERS OF CLIFFS

     199  

Security Ownership of Directors and Executive Officers

     199  

Security Ownership of Other Beneficial Owners

     200  

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND DIRECTORS/EXECUTIVE OFFICERS OF AK STEEL

     201  

Security Ownership of Directors and Executive Officers

     201  

Security Ownership of Other Beneficial Owners

     202  

VALIDITY OF COMMON SHARES

     203  

TAX OPINION

     204  

EXPERTS

     205  

Cliffs

     205  

AK Steel

     205  

SHAREHOLDER AND STOCKHOLDER PROPOSALS

     206  

Cliffs Shareholder Proposals

     206  

AK Steel Stockholder Proposals

     206  

HOUSEHOLDING OF PROXY MATERIALS

     208  

Cliffs Householding

     208  

AK Steel Householding

     208  

WHERE YOU CAN FIND MORE INFORMATION

     209  

Annex A: Agreement and Plan of Merger

  

Annex B: Opinion of Moelis & Company LLC

  

Annex C: Opinion of Goldman Sachs & Co. LLC

  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

The following are answers to certain questions that you may have regarding the Merger and the Cliffs and AK Steel special meetings. Cliffs and AK Steel urge you to read carefully the remainder of this document because the information in this section may not provide all the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to, and the documents incorporated by reference in, this document. See “References to Additional Information” at the beginning of this document.

 

Q.

Why am I receiving this joint proxy statement/prospectus?

 

A.

You, as a Cliffs shareholder or an AK Steel stockholder, are receiving this joint proxy statement/prospectus because Cliffs and AK Steel have entered into the Merger Agreement pursuant to which, on the terms and subject to the conditions included in the Merger Agreement, Merger Sub will merge with and into AK Steel, with AK Steel surviving the Merger as a direct, wholly owned subsidiary of Cliffs. Your vote is required in connection with the Merger. The Merger Agreement, which governs the terms of the Merger, is attached to this joint proxy statement/prospectus as Annex A.

Cliffs. Completion of the Merger requires that the Merger Agreement and the transactions contemplated thereby, including the issuance of Cliffs common shares in connection with the Merger, be approved by the shareholders of Cliffs in accordance with the rules of the NYSE and the Ohio Revised Code, which is referred to as the ORC. Cliffs is holding a special meeting of its shareholders, which is referred to as the Cliffs special meeting, to obtain that approval. If necessary or appropriate, Cliffs shareholders will also be asked to approve the adjournment of the Cliffs special meeting to solicit additional proxies in the event there are not sufficient votes at the time of the Cliffs special meeting to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger.

AK Steel. Completion of the Merger requires that the Merger Agreement be adopted by AK Steel stockholders in accordance with the General Corporation Law of the State of Delaware, which is referred to as the DGCL. AK Steel is holding a special meeting of its stockholders, which is referred to as the AK Steel special meeting, to obtain that approval. At the AK Steel special meeting, AK Steel stockholders will also be asked to vote on the AK Steel compensation proposal, as defined below, and, if necessary or appropriate, a proposal to adjourn the AK Steel special meeting to solicit additional proxies in the event there are not sufficient votes at the time of the meeting to adopt the Merger Agreement.

 

Q:

When and where will the special meetings take place?

 

A:

Cliffs. The Cliffs special meeting will be held at [                ] Eastern Time on [                 ], 2020, at [                ].

 

  

AK Steel. The AK Steel special meeting will be held at [                ] Eastern Time on [                ], 2020, at [                ].

 

Q:

What matters will be considered at the special meetings?

 

A:

Cliffs. Cliffs shareholders will be asked to:

 

   

consider and vote on a proposal to approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger, which is referred to as the Cliffs merger proposal; and

 

   

consider and vote on a proposal to adjourn the Cliffs special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the Cliffs special meeting to approve the Cliffs merger proposal, which is referred to as the Cliffs adjournment proposal.

 

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AK Steel. AK Steel stockholders will be asked to:

 

   

consider and vote on a proposal to adopt the Merger Agreement, which is referred to as the AK Steel merger proposal;

 

   

consider and vote on a proposal to approve, by a non-binding, advisory vote, certain compensation that may be paid or become payable to AK Steel’s named executive officers that is based on or otherwise relates to the Merger, which is referred to as the AK Steel compensation proposal; and

 

   

consider and vote on a proposal to adjourn the AK Steel special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes at the time of the AK Steel special meeting to approve the AK Steel merger proposal, which is referred to as the AK Steel adjournment proposal.

 

Q:

Is my vote important?

 

A:

Cliffs. Yes. The Merger cannot be completed unless the Cliffs merger proposal is approved by the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. Only Cliffs shareholders as of the close of business on [                ], 2020, which is referred to as the record date, are entitled to vote at the Cliffs special meeting. The Cliffs board of directors, which is referred to as the Cliffs board, unanimously recommends that Cliffs shareholders vote “FOR” the approval of the Cliffs merger proposal and “FOR” the approval of the Cliffs adjournment proposal.

AK Steel. Yes. The Merger cannot be completed unless the Merger Agreement is adopted by AK Steel stockholders representing a majority of the outstanding shares of common stock, par value $0.01 per share, of AK Steel, which is referred to as AK Steel common stock, entitled to vote thereon at the AK Steel special meeting. Only AK Steel stockholders as of the close of business on the record date are entitled to vote at the AK Steel special meeting.

The board of directors of AK Steel, which is referred to as the AK Steel board, unanimously recommends that AK Steel stockholders vote “FOR” the approval of the AK Steel merger proposal, “FOR” the approval of the AK Steel compensation proposal and “FOR” the approval of the AK Steel adjournment proposal.

 

Q:

If my Cliffs common shares or my shares of AK Steel common stock are held in “street name” by my bank, broker or other nominee, will my bank, broker or other nominee automatically vote those shares for me?

 

A:

No. If you hold your shares in a stock brokerage account or if your shares are held by a bank or nominee, your bank, broker or other nominee cannot vote your shares on any of the proposals at the Cliffs special meeting or AK Steel special meeting without instructions from you.

Under the NYSE rules, brokers who hold shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be “non-routine.” Under the NYSE rules, brokers are not permitted to vote on any of the matters to be considered at the Cliffs special meeting or the AK Steel special meeting unless they have received instructions from the beneficial owners. As a result, your shares will not be voted on any matter unless you affirmatively instruct your broker, bank or nominee how to vote your shares in one of the ways indicated by your broker, bank or other nominee.

A “broker non-vote” occurs when a broker submits a proxy that states that the broker does not vote for some of the proposals because the broker has not received instructions from the beneficial owners on how to vote on the proposals and does not have discretionary authority to vote in the absence of instructions. Because brokers will not have discretionary authority to vote on any of the proposals at the special meetings, no “broker non-votes” can occur at the Cliffs special meeting or AK Steel special meeting.

 

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Q:

What Cliffs shareholder vote is required for the approval of each proposal brought before the Cliffs special meeting? What will happen if I fail to vote or abstain from voting on each proposal?

 

A:

The Cliffs merger proposal. Approval of the Cliffs merger proposal requires the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. The failure to submit a proxy card or to vote in person at the Cliffs special meeting or the abstention from voting by Cliffs shareholders, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Cliffs merger proposal, will have the same effect as a vote “AGAINST” the Cliffs merger proposal.

The Cliffs adjournment proposal. Approval of the Cliffs adjournment proposal requires the affirmative vote of the holders of a majority of the Cliffs common shares present in person or represented by proxy at the Cliffs special meeting, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the Cliffs adjournment proposal, while the failure to submit a proxy card or to vote in person at the Cliffs special meeting, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee on the Cliffs merger proposal and the Cliffs adjournment proposal, will have no effect on the Cliffs adjournment proposal.

 

Q:

What vote is required for AK Steel stockholders to approve each proposal brought before the AK Steel special meeting? What will happen if I fail to vote or abstain from voting on each proposal?

 

A:

The AK Steel merger proposal. Approval of the AK Steel merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of AK Steel common stock entitled to vote on the proposal. If you fail to vote, or vote to abstain, it will have the same effect as a vote “AGAINST” the proposal. The failure of any AK Steel stockholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the AK Steel merger proposal will have the same effect as a vote “AGAINST” the AK Steel merger proposal.

The AK Steel compensation proposal. Approval of the AK Steel compensation proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the AK Steel compensation proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel compensation proposal, assuming a quorum is present at the AK Steel special meeting.

The AK Steel adjournment proposal. Approval of the AK Steel adjournment proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the AK Steel adjournment proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel adjournment proposal.

 

Q:

What will AK Steel stockholders receive if the Merger is completed?

 

A:

As a result of the Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the Merger (other than excluded shares, as defined in the section entitled “The Merger—Consideration to AK Steel Stockholders” beginning on page [    ]) will be converted into the right

 

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  to receive 0.400 Cliffs common shares, which is referred to as the merger consideration, and such ratio is referred to as the exchange ratio.

If you would otherwise be entitled to receive a fractional Cliffs common share you will receive cash in lieu of such fractional share, and you will not be entitled to dividends, voting rights or any other rights in respect of such fractional share.

For more information regarding the merger consideration to be provided to AK Steel stockholders, see the section entitled “The Merger—Consideration to AK Steel Stockholders” beginning on page [    ]. For more information regarding exchange procedures, see the section entitled “The Merger Agreement—Exchange Procedures” beginning on page [    ].

 

Q:

What will holders of AK Steel equity awards receive in the Merger?

 

A:

At the effective time of the Merger, each outstanding AK Steel equity award (other than any cash-out options, as described below and in the section entitled “The Merger Agreement—Treatment of Outstanding AK Steel Equity Awards in the Merger” beginning on page [    ]) will be converted into equity awards with respect to Cliffs common shares.

AK Steel Options

Holders of options to purchase AK Steel common stock that were granted under an AK Steel stock incentive plan other than the AK Steel Holding Corporation 2019 Omnibus Supplemental Incentive Plan and the AK Steel Holding Corporation Stock Incentive Plan (as amended and restated as of May 26, 2016), which are referred to as pre-2016 options, will have the right, no later than one day prior to the date of the closing of the Merger, to elect to have their pre-2016 options, whether vested or unvested, cancelled in exchange for a cash payment (without interest and less applicable withholding taxes) in an amount equal to the product of (i) the number of shares of AK Steel common stock subject to such pre-2016 option as of immediately prior to the effective time of the Merger and (ii) the excess, if any, of the per share option consideration (as described below) over the exercise price per share of AK Steel common stock subject to such pre-2016 option, which cash amount is referred to as the cash-out option payment. For purposes of the Merger Agreement, the per share option consideration means the greater of (x) the product of the exchange ratio multiplied by the volume weighted average trading price per Cliffs common share for the five consecutive trading days ending with, and including, the trading day immediately prior to the closing date, or (y) the highest average of the highest and lowest sales price per share of AK Steel common stock on a trading day during the 90-day period ending on the day immediately prior to the closing date. Each pre-2016 option for which a holder makes an election described in this paragraph is referred to as a cash-out option.

At the effective time of the Merger, each outstanding option to purchase AK Steel common stock that is not a cash-out option, whether vested or unvested, will, automatically and without any action on the part of the holder thereof, be converted into an option to acquire a number of Cliffs common shares (rounded down to the nearest whole number) equal to (i) the number of shares of AK Steel common stock subject to such AK Steel option immediately prior to the effective time of the Merger multiplied by (ii) the exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (x) the exercise price per share of AK Steel common stock of such AK Steel option immediately prior to the effective time of the Merger divided by (y) the exchange ratio. Following the effective time of the Merger, each such converted option will, in general, continue to be governed by the same terms and conditions (including vesting terms and double-trigger termination protection) as were applicable to such AK Steel option immediately prior to the effective time of the Merger.

AK Steel Restricted Stock Units

At the effective time of the Merger, each outstanding restricted stock unit in respect of AK Steel common stock with only time-based vesting requirements, which is referred to as an AK Steel RSU, whether vested

 

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or unvested, will, automatically and without any action on the part of the holder thereof, be converted into a restricted stock unit denominated in Cliffs common shares relating to the number of Cliffs common shares (rounded down to the nearest whole number) equal to (i) the number of shares of AK Steel common stock subject to such AK Steel RSU immediately prior to the effective time of the Merger multiplied by (ii) the exchange ratio. Following the effective time of the Merger, each such restricted stock unit will, in general, continue to be governed by the same terms and conditions (including vesting terms and double-trigger termination protection) as were applicable to such AK Steel RSU immediately prior to the effective time of the Merger.

AK Steel Performance Share Awards

At the effective time of the Merger, each outstanding performance share award in respect of AK Steel common stock with any performance-based vesting requirements, which is referred to as an AK Steel PSA, will, automatically and without any action on the part of the holder thereof, be converted into a performance share award denominated in Cliffs common shares relating to the number of Cliffs common shares (rounded down to the nearest whole number) equal to (i) the number of shares of AK Steel common stock that would have been issued under such AK Steel PSA at the achievement of target performance, multiplied by (ii) the exchange ratio. The performance goals applicable to each AK Steel PSA will be adjusted by the Management Development and Compensation Committee of the AK Steel board, as mutually determined by Cliffs and AK Steel, to take into account the transactions contemplated by the Merger Agreement, which shall include the same opportunity to earn the maximum percentage of performance shares as under the AK Steel PSA award agreement immediately prior to the effective time of the Merger. Following the effective time of the Merger, each such performance share award will, in general, continue to be governed by the same terms and conditions (including vesting terms and double-trigger termination protection) as were applicable to such AK Steel PSA immediately prior to the effective time of the Merger.

AK Steel Restricted Shares

At the effective time of the Merger, each outstanding share of AK Steel common stock that is subject to vesting, repurchase, or other lapse restrictions, which is referred to as an AK Steel restricted share, will, automatically and without any action on the part of the holder thereof, be converted into restricted shares denominated in Cliffs common shares relating to the number of Cliffs common shares (rounded down to the nearest whole number) equal to (i) the number of AK Steel restricted shares held by a holder, multiplied by (ii) the exchange ratio. Following the effective time of the Merger, each such restricted share will, in general, continue to be governed by the same terms and conditions (including vesting terms and double-trigger termination protection) as were applicable to such AK Steel restricted share immediately prior to the effective time of the Merger.

 

Q:

How do the boards of directors of Cliffs and AK Steel recommend that I vote?

 

A:

Cliffs. The Cliffs board recommends that Cliffs shareholders vote “FOR” the approval of the Cliffs merger proposal and “FOR” the approval of the Cliffs adjournment proposal. For more information regarding how the Cliffs board recommends that Cliffs shareholders vote, see the section entitled “The Merger—Recommendation of the Cliffs Board and Reasons for the Merger” beginning on page [    ].

AK Steel. The AK Steel board recommends that you vote “FOR” the approval of the AK Steel merger proposal, “FOR” the approval of the AK Steel compensation proposal and “FOR” the approval of the AK Steel adjournment proposal. For more information regarding how the AK Steel board recommends that you vote, see the section entitled “The Merger—Recommendation of the AK Steel Board and Reasons for the Merger” beginning on page [    ].

 

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Q:

Why are AK Steel stockholders being asked to vote on certain named executive officer compensation arrangements?

 

A:

The SEC has adopted rules that require AK Steel to provide its stockholders with the opportunity to approve the compensation that may be paid or become payable to AK Steel’s named executive officers that is based on, or otherwise relates to, the Merger. The AK Steel compensation proposal is a non-binding, advisory vote. For further information on these arrangements and the potential payments, see the sections entitled “The Merger—Interests of AK Steel Directors and Executive Officers in the Merger” and “The Merger—Interests of AK Steel Directors and Executive Officers in the Merger—Merger-Related Compensation for AK Steel’s Named Executive Officers” beginning on pages [    ] and [    ], respectively.

 

Q:

Who is entitled to vote at the special meeting?

 

A:

Cliffs special meeting. The Cliffs board has fixed [                 ], 2020 as the record date for the Cliffs special meeting. All holders of record of Cliffs common shares as of the close of business on the record date are entitled to receive notice of, and to vote at, the Cliffs special meeting, provided that those shares remain outstanding on the date of the Cliffs special meeting. Physical attendance at the Cliffs special meeting is not required to vote. See the section entitled “Questions and Answers About the Merger and the Special Meetings—How can I vote my shares without attending the special meeting?” beginning on page [    ] for instructions on how to vote your shares without attending the Cliffs special meeting.

AK Steel special meeting. The AK Steel board has fixed [                 ], 2020 as the record date for the AK Steel special meeting. All holders of record of shares of AK Steel common stock as of the close of business on the record date are entitled to receive notice of, and to vote at, the AK Steel special meeting. Physical attendance at the AK Steel special meeting is not required to vote. See the section entitled “Questions and Answers About the Merger and the Special Meetings—How can I vote my shares without attending the special meeting?” beginning on page [    ] for instructions on how to vote your shares without attending the AK Steel special meeting.

 

Q:

What if my shares are held in an AK Steel Corporation Thrift Plan?

 

A:

If you hold shares of AK Steel common stock in an AK Steel stock fund through certain AK Steel thrift plans, including the AK Steel Corporation Thrift Plan A, AK Steel Corporation Thrift Plan B and AK Steel Corporation Thrift Plan C, which are collectively referred to as the AK Steel thrift plans, you must timely provide the applicable AK Steel thrift plan trustee with voting instructions with respect to the shares you hold in such AK Steel thrift plan. If you do not provide the AK Steel thrift plan trustee with voting instructions, neither the AK Steel thrift plan trustee nor the applicable fiduciary committee for such AK Steel thrift plan will be able to vote the shares of AK Steel common stock held for your benefit through such AK Steel thrift plan at the AK Steel special meeting.

 

Q:

What is a proxy?

 

A:

A proxy is a legal authorization of another person to vote the stock you own on your behalf.

Cliffs shareholders. If you are a shareholder of record of Cliffs common shares as of the close of business on the record date, and you vote via the Internet, by telephone or by signing, dating and returning your proxy card in the enclosed postage-paid envelope, you designate certain of Cliffs’ officers as your proxies at the Cliffs special meeting. Each such officer will have the power to act on your behalf to vote your shares at the Cliffs special meeting as directed in your proxy. If you submit an executed proxy without indicating instructions with respect to any proposal, then such officers will vote your shares consistent with the recommendation of the Cliffs board on such proposal.

AK Steel stockholders. If you are a stockholder of record of AK Steel common stock as of the close of business on the record date, and you vote via the Internet, by telephone or by signing, dating and returning

 

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your proxy card in the enclosed postage-paid envelope, you designate certain of AK Steel’s officers as your proxies at the AK Steel special meeting. Each such officer will have the power to act on your behalf to vote your shares at the AK Steel special meeting as directed in your proxy. If you submit an executed proxy without indicating instructions with respect to any proposal, then such officers will vote your shares consistent with the recommendation of the AK Steel board on such proposal.

 

Q:

How many votes do I have?

 

A:

Cliffs shareholders. Each Cliffs shareholder of record is entitled to one vote for each Cliffs common share held of record by him or her as of the close of business on the record date.

AK Steel stockholders. Each AK Steel stockholder of record is entitled to one vote for each share of AK Steel common stock held of record by him or her as of the close of business on the record date.

 

Q:

What constitutes a quorum for the special meeting?

 

A:

A quorum is the minimum number of shares required to be represented, either by the appearance of the stockholder or shareholder in person or through representation by proxy, to hold a valid meeting.

Quorum for Cliffs special meeting. A quorum will exist at the Cliffs special meeting if shares representing not less than a majority of the voting power of Cliffs are present, in person or represented by proxy, with respect to any matter to be considered at the Cliffs special meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum, including abstentions. Cliffs common shares held in “street name” will be counted as present for the purpose of determining the existence of a quorum at the Cliffs special meeting so long as the beneficial owner of the shares has given its bank, broker or other nominee voting instructions on at least one of the proposals brought before the Cliffs special meeting. The proposals for consideration at the Cliffs special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, no “broker non-votes” can occur at the meeting. Cliffs common shares held in “street name” will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on either of the proposals.

Quorum for AK Steel special meeting. A quorum will exist with respect to each matter to be considered at the AK Steel special meeting if holders of record of shares of AK Steel common stock representing not less than a majority of the issued and outstanding shares of AK Steel common stock entitled to vote at the AK Steel special meeting are present in person or represented by proxy. Shares of AK Steel common stock held in “street name” will be counted as present for the purpose of determining the existence of a quorum at the AK Steel special meeting so long as a stockholder has given the bank, broker or other nominee voting instructions on at least one of the proposals brought before the AK Steel special meeting. The proposals for consideration at the AK Steel special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, banks, brokers and other nominees cannot vote any shares unless they have received instructions on how to vote the shares. As a result, no “broker non-votes” can occur at the meeting and shares of AK Steel common stock held in “street name” will not be counted as present for the purpose of determining the existence of a quorum at the AK Steel special meeting if no instructions have been provided on how to vote on any such proposals.

 

Q:

What will happen to AK Steel as a result of the Merger?

 

A:

If the Merger is completed, Merger Sub will merge with and into AK Steel. As a result of the Merger, the separate corporate existence of Merger Sub will cease and AK Steel will continue as the surviving corporation and as a direct, wholly owned subsidiary of Cliffs. Further, if the Merger is completed, AK Steel will no longer be a public company, and the AK Steel common stock will be de-listed from the NYSE.

 

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Q:

I own shares of AK Steel common stock. What will happen to those shares as a result of the Merger?

 

A:

If the Merger is completed, each of your shares of AK Steel common stock will be cancelled and thereafter represent only the right to receive, on the terms and subject to the conditions set forth in the Merger Agreement, the merger consideration as well as cash in lieu of any fractional Cliffs common shares and any dividends or distributions on the Cliffs common shares with a record date at or after the effective time of the Merger. See the section entitled “The Merger Agreement—Merger Consideration” beginning on page [    ].

 

Q:

Where will the Cliffs common shares that AK Steel stockholders receive in the Merger be publicly listed and traded?

 

A:

The Cliffs common shares issued to AK Steel stockholders in connection with the Merger will be listed and traded on the NYSE under the ticker symbol, “CLF.”

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger, is not approved by Cliffs shareholders or if the Merger Agreement is not adopted by AK Steel stockholders, or if the Merger is not completed for any other reason, AK Steel stockholders will not receive the merger consideration or any other consideration in connection with the Merger, and their shares of AK Steel common stock will remain outstanding.

If the Merger is not completed, AK Steel will remain an independent public company and its common stock will continue to be listed and traded on the NYSE. If the Merger is not completed, Cliffs will not issue Cliffs common shares to AK Steel stockholders pursuant to the Merger Agreement, regardless of whether the Cliffs merger proposal is approved. If the Merger Agreement is terminated under specified circumstances, either AK Steel or Cliffs (depending on the circumstances) may be required to pay the other party a termination fee. See “The Merger Agreement—Termination” beginning on page [    ] for a more detailed discussion of the termination fees.

 

Q:

How can I vote my shares in person at the special meeting?

 

A:

Cliffs. Cliffs common shares held directly in your name as the shareholder of record of such Cliffs common shares as of the close of business on [                 ], 2020, the record date, may be voted in person at the Cliffs special meeting. If you choose to attend the Cliffs special meeting, you will need to bring valid, government-issued photo identification.

If you are a beneficial owner of Cliffs common shares but not the shareholder of record of such Cliffs common shares, you will also need proof of stock ownership to be admitted to the Cliffs special meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. Please note that if your shares are held in “street name” by a bank, broker or other nominee and you wish to vote at the Cliffs special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the Cliffs special meeting. To request a legal proxy, please contact your bank, broker or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the Cliffs special meeting.

Failure to bring the appropriate documentation may delay your entry into or prevent you from attending or voting in person at the Cliffs special meeting. The doors to the meeting room will be closed promptly at the start of the Cliffs special meeting, and shareholders will not be permitted to enter after that time.

AK Steel. Shares of AK Steel common stock held directly in your name as the stockholder of record as of the close of business on [                 ], 2020, the record date, may be voted in person at the AK Steel special meeting. If you choose to attend the AK Steel special meeting, you will need to bring valid, government-issued photo identification.

 

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If you are a beneficial owner of AK Steel common stock but not the stockholder of record of such shares (for example, if your shares are held in “street name” by a bank, broker or other nominee) you will also need proof of stock ownership to be admitted to the AK Steel special meeting. A recent brokerage statement or a letter from a bank or broker are examples of proof of ownership. If you wish to vote at the AK Steel special meeting, you will not be permitted to vote in person unless you first obtain a legal proxy issued in your name from the record owner and present it to the inspector of election with your ballot at the AK Steel special meeting. To request a legal proxy please contact your bank, broker or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the AK Steel special meeting.

Failure to bring the appropriate documentation may delay your entry into or prevent you from attending or voting in person at the AK Steel special meeting.

 

Q:

How can I vote my shares without attending the special meeting?

 

A:

Cliffs. If you are a shareholder of record of Cliffs common shares as of the close of business on [                 ], 2020, the record date, you can vote by proxy via the Internet, by telephone or by mail by following the instructions provided on the enclosed proxy card. If your Cliffs common shares are held in “street name,” you may vote by following the voting instructions provided by your bank, broker or other nominee. Internet and telephone voting may be available to beneficial owners of Cliffs common shares. Please refer to the voting instruction form provided by your bank, broker or other nominee.

AK Steel. If you are a stockholder of record of AK Steel common stock as of the close of business on [                ], 2020, the record date, you can vote by proxy via the Internet, by telephone or by mail by following the instructions provided on the enclosed proxy card.

If your shares of AK Steel common stock are held in “street name,” you may vote by following the voting instructions provided by your bank, broker or other nominee. Internet and telephone voting may be available to beneficial owners of AK Steel common stock. Please refer to the voting instruction form provided by your bank, broker or other nominee.

 

Q:

What is the difference between holding shares as a record owner and as a beneficial owner?

 

A:

Cliffs. If your Cliffs common shares are registered directly in your name with Cliffs’ transfer agent, Broadridge Corporate Issuer Solutions, you are considered the shareholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held by a bank, in a stock brokerage account or by another nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy materials is being provided to you by your bank, broker or other nominee who is considered the shareholder of record with respect to those shares.

AK Steel. If your shares of AK Steel common stock are registered directly in your name with AK Steel’s transfer agent, Computershare, you are considered the stockholder of record with respect to those shares, and access to proxy materials is being provided directly to you. If your shares are held by a bank, in a stock brokerage account or by another nominee, then you are considered the beneficial owner of those shares, which are considered to be held in “street name.” Access to proxy materials is being provided to you by your bank, broker or other nominee who is considered the stockholder of record with respect to those shares.

 

Q:

I hold Cliffs common shares and shares of AK Steel common stock. Do I need to vote separately for each company?

 

A:

Yes. Cliffs and AK Steel will hold separate meetings and their shareholders and stockholders, respectively, are being asked to vote on different matters. You will need to separately follow the applicable procedures described in this joint proxy statement/prospectus both with respect to the voting of Cliffs common shares and with respect to the voting of shares of AK Steel common stock in order to effectively vote the shares of common stock you hold in each company.

 

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Q:

What should I do if I receive more than one set of voting materials?

 

A:

You may receive more than one set of voting materials relating to the Cliffs special meeting or the AK Steel special meeting if you hold Cliffs common shares or shares of AK Steel common stock in “street name” and also directly in your name as a shareholder or stockholder of record or otherwise or if you hold Cliffs common shares or shares of AK Steel common stock in more than one brokerage account. You may also receive more than one set of materials if you hold shares of both Cliffs and AK Steel.

Direct holders (Cliffs shareholders of record or AK Steel stockholders of record)

For Cliffs common shares or shares of AK Steel common stock held directly, please complete, sign, date and return each proxy card that you receive (or cast your vote via the Internet or by telephone as provided on each proxy card) or otherwise follow the voting instructions provided in this joint proxy statement/prospectus in order to ensure that all of your Cliffs common shares and/or shares of AK Steel common stock are voted.

Shares in “street name”

For Cliffs common shares or shares of AK Steel common stock held in “street name” through a bank, broker or other nominee, you should follow the instructions provided by your bank, broker or other nominee to vote your shares.

 

Q:

If a Cliffs shareholder or an AK Steel stockholder gives a proxy, how will the Cliffs common shares or shares of AK Steel common stock, as applicable, covered by the proxy be voted?

 

A:

If you provide a proxy, regardless of whether you provide that proxy via the Internet, by telephone or by completing and returning the applicable enclosed proxy card, the individuals named on the enclosed proxy card will vote the Cliffs common shares or the shares of AK Steel common stock, as applicable, represented by the proxy in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your Cliffs common shares or your shares of AK Steel common stock, as applicable, should be voted for or against (or to abstain from voting on) all, some or none of the specific items of business to come before the Cliffs special meeting or the AK Steel special meeting, as applicable.

 

Q:

How will my shares be voted if I return a blank proxy?

 

A:

Cliffs. If you sign, date and return your proxy and do not indicate how you want your Cliffs common shares to be voted, then your Cliffs common shares will be voted in accordance with the recommendation of the Cliffs board.

AK Steel. If you sign, date and return your proxy and do not indicate how you want your shares of AK Steel common stock to be voted, then your shares of AK Steel common stock will be voted in accordance with the recommendation of the AK Steel board.

 

Q:

Can I change my vote after I have submitted my proxy?

 

A:

Cliffs. Yes. If you are a shareholder of record of Cliffs common shares as of the close of business on the record date, whether you vote via the Internet, by telephone or mail, you can change or revoke your proxy before it is voted at the Cliffs special meeting in any of the following ways:

 

   

you can submit a new proxy card bearing a later date;

 

   

you can vote again via the Internet or by telephone at a later time;

 

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you can deliver a written notice of your revocation to Cliffs’ Secretary at the address listed for Cliffs in the section entitled “Where You Can Find More Information” beginning on page [    ]; or

 

   

you can vote in person at the Cliffs special meeting. Please note that your attendance at the Cliffs special meeting will not alone serve to revoke your proxy.

If you are a beneficial owner of Cliffs common shares as of the close of business on the record date, you must follow the instructions of your bank, broker or other nominee to revoke or change your voting instructions.

AK Steel. Yes. If you are a stockholder of record of shares of AK Steel common stock as of the close of business on the record date, whether you vote via the Internet, by telephone or mail, you can change or revoke your proxy before it is voted at the AK Steel special meeting in any of the following ways:

 

   

you can submit a new proxy card bearing a later date;

 

   

you can vote again via the Internet or by telephone at a later time;

 

   

you can deliver a written notice of your revocation to AK Steel’s Corporate Secretary at 9227 Centre Pointe Drive, West Chester, Ohio 45069; or

 

   

you can vote in person at the AK Steel special meeting. Please note that your attendance at the AK Steel special meeting will not alone serve to revoke your proxy.

If you are a beneficial owner of AK Steel common stock as of the close of business on the record date, you must follow the instructions of your bank, broker or other nominee to revoke or change your voting instructions.

 

Q:

Where can I find the voting results of the special meetings?

 

A:

The preliminary voting results are expected to be announced at each of the special meetings. In addition, within four business days following their respective meetings, Cliffs and AK Steel each will file the final voting results of its special meeting (or, if the final voting results have not yet been certified, the preliminary results) with the SEC in a Current Report on Form 8-K.

 

Q:

If I am a Cliffs shareholder and I am not in favor of the approval of the Merger Agreement and the transactions contemplated thereby, including the issuance of Cliffs common shares in connection with the Merger, what are my rights?

 

A:

You may abstain from voting on, or vote against, the Cliffs merger proposal. However, if Cliffs shareholders approve the Cliffs merger proposal and the Merger is completed, in accordance with Section 1701.84 of the ORC, no appraisal rights will be available to the holders of Cliffs common shares in connection with the Merger or the other transactions contemplated by the Merger Agreement.

 

Q:

If I am an AK Steel stockholder and I am not in favor of the Merger, what are my rights?

 

A:

You may abstain from voting on, or vote against, the AK Steel merger proposal. However, if AK Steel stockholders approve the AK Steel merger proposal and the Merger is completed, in accordance with Section 262 of the DGCL, no appraisal rights will be available to the holders of shares of AK Steel common stock in connection with the Merger or the other transactions contemplated by the Merger Agreement.

 

Q:

Are there any risks that I should consider as a Cliffs shareholder or AK Steel stockholder in deciding how to vote?

 

A:

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page [    ] as well as the factors considered by the Cliffs board and AK Steel board in

 

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  determining to approve the Merger Agreement and related transactions in the sections entitled “The Merger—Recommendation of the Cliffs Board and Reasons for the Merger” and “The Merger—Recommendation of the AK Steel Board and Reasons for the Merger” beginning on pages [    ] and [    ], respectively. You also should read and carefully consider the risk factors of Cliffs and AK Steel contained in the documents that are incorporated by reference herein.

 

Q:

What happens if I sell my Cliffs common shares before the Cliffs special meeting?

 

A:

The record date for Cliffs shareholders entitled to vote at the Cliffs special meeting is earlier than the date of the Cliffs special meeting. If you transfer your Cliffs common shares after the record date but before the Cliffs special meeting, you will, unless special arrangements are made, retain your right to vote at the Cliffs special meeting.

 

Q:

What happens if I sell my shares of AK Steel common stock before the AK Steel special meeting?

 

A:

The record date for AK Steel stockholders entitled to vote at the AK Steel special meeting is earlier than the date of the AK Steel special meeting. If you transfer your shares of AK Steel common stock after the record date but before the AK Steel special meeting, you will, unless special arrangements are made, retain your right to vote at the AK Steel special meeting but will have transferred the right to receive the merger consideration for such shares in connection with the Merger to the person to whom you transferred your shares of AK Steel common stock.

 

Q:

What are the material U.S. federal income tax consequences of the Merger to me?

 

A:

It is intended that, for United States federal income tax purposes, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, of 1986, as amended, which is referred to as the Code, and it is a condition to the parties’ respective obligations to consummate the Merger that AK Steel receive a tax opinion from Weil, Gotshal & Manges LLP, AK Steel’s tax counsel, which is referred to as Weil, that the Merger will so qualify; provided, that if Weil is unwilling or unable to provide such tax opinion, (i) Cliffs’ tax counsel may, at the election of Cliffs, deliver such a tax opinion to AK Steel or (ii) if Cliffs does not elect to have its tax counsel deliver such tax opinion, AK Steel must use its reasonable best efforts to obtain such a tax opinion from another nationally recognized tax counsel reasonably acceptable to AK Steel. Assuming the Merger qualifies for the intended tax treatment, a U.S. holder of shares of AK Steel common stock generally will not recognize any gain or loss for United States federal income tax purposes upon the exchange of such holder’s shares of AK Steel common stock for shares of Cliffs common shares in the Merger, except for any gain or loss recognized with respect to cash received in lieu of a fractional share of Cliffs common shares.

For a more detailed discussion of the material United States federal income tax consequences of the Merger, please carefully review the information set forth in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [    ] of this joint proxy statement/prospectus.

The tax consequences of the Merger to any particular stockholder will depend on that stockholder’s particular facts and circumstances. Accordingly, you are urged to consult your own tax advisor as to the specific tax consequences of the Merger.

 

Q:

When is the Merger expected to be completed?

 

A:

The Merger will be completed only following the satisfaction or waiver (if permitted) of the closing conditions described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page [    ]. The Merger is currently expected to close in the first half of 2020. However, it is possible that factors outside the control of both companies could result in the Merger being completed at a later time or not being completed at all.

 

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Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

Cliffs. The Cliffs board is soliciting proxies from Cliffs shareholders in connection with the Cliffs special meeting. Cliffs will bear the cost of solicitation of such proxies. Cliffs has retained Okapi Partners LLC, which is referred to as Okapi Partners, to assist in the solicitation process. Cliffs will pay Okapi Partners a fee of approximately $50,000, as well as reasonable and documented out-of-pocket expenses. Cliffs also has agreed to indemnify Okapi Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

AK Steel. The AK Steel board is soliciting proxies from AK Steel stockholders in connection with the AK Steel special meeting. AK Steel will bear the cost of solicitation of such proxies. AK Steel has retained Georgeson LLC, which is referred to as Georgeson, to assist in the solicitation process. AK Steel will pay Georgeson a fee of approximately $17,500, as well as reasonable and documented out-of-pocket expenses. AK Steel also has agreed to indemnify Georgeson against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

 

Q:

What are the conditions to the completion of the Merger?

 

A:

In addition to the approval of the Cliffs merger proposal by Cliffs shareholders and the adoption of the Merger Agreement by AK Steel stockholders as described above, completion of the Merger is subject to the satisfaction or waiver (if permitted) of a number of other conditions, including, among others:

 

   

The Cliffs common shares issuable to AK Steel stockholders pursuant to the Merger Agreement must have been authorized for listing on the NYSE, subject to official notice of issuance;

 

   

The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which is referred to as the HSR Act, applicable to the completion of the Merger and the other transactions contemplated by the Merger Agreement must have expired or been terminated, and all approvals, notices or other requirements under the Canadian Competition Act and from the Mexican Competition Commission must have been obtained, made or satisfied; see the section entitled “The Merger—Regulatory Approvals” beginning on page [    ];

 

   

There must not have been enacted, issued, promulgated, enforced or entered by a court or other governmental entity of competent jurisdiction any applicable law or order that is in effect and restrains, enjoins or otherwise prohibits the completion of the Merger or the other transactions contemplated by the Merger Agreement;

 

   

The registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part must have become effective under the Securities Act and must not be the subject of any stop order issued by the SEC or any pending proceedings initiated by the SEC seeking such a stop order;

 

   

AK Steel must have received the tax opinion referred to in the section entitled “The Merger Agreement—Tax Treatment” from its tax counsel; provided, that if AK Steel’s tax counsel is unwilling or unable to provide such tax opinion, (i) Cliffs’ tax counsel may, at the election of Cliffs, deliver its tax opinion to AK Steel or (ii) if Cliffs does not elect to have its tax counsel deliver its tax opinion, AK Steel must use its reasonable best efforts to obtain the tax opinion from another nationally recognized tax counsel reasonably acceptable to AK Steel;

 

   

The accuracy of Cliffs’ and AK Steel’s respective representations and warranties under the Merger Agreement (subject to certain materiality qualifiers); and

 

   

Cliffs’ and AK Steel’s performance of their respective obligations under the Merger Agreement in all material respects.

For a more complete summary of the conditions that must be satisfied or waived prior to completion of the Merger, see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page [    ].

 

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Q:

I am an AK Steel stockholder. How do I exchange my shares of AK Steel common stock for the merger consideration? Should I send in my AK Steel stock certificates now?

 

A:

No. To the extent you hold shares that are represented by a certificate, you should keep your existing stock certificates at this time.

Once the Merger has been completed, AK Steel stockholders will receive a letter of transmittal and written instructions for exchanging their stock certificates or surrendering their book-entry shares from the exchange agent. Each AK Steel stockholder that holds shares represented by a certificate must deliver to the exchange agent the certificate representing such shares (or an affidavit of loss in lieu of the certificate) together with such other documents and information as are required by the letter of transmittal and accompanying instructions. Each AK Steel stockholder who holds book-entry shares of AK Steel common stock will be required to deliver to the exchange agent customary evidence of ownership of such shares (including the delivery of an “agent’s message”) as determined by the exchange agent and set forth in the letter of transmittal.

After receiving the proper documentation from you, following the effective time of the Merger, the exchange agent will deliver to you, for each share of AK Steel common stock, the merger consideration to which you are entitled as well as cash in lieu of any fractional Cliffs common shares and any applicable dividends or other distributions payable on your Cliffs common shares with a record date at or after the effective time of the Merger. See the section entitled “The Merger Agreement—Exchange Procedures” beginning on page [    ].

 

Q:

What equity stake will AK Steel stockholders hold in Cliffs immediately following the Merger?

 

A:

Based on the number of issued and outstanding Cliffs common shares and shares of AK Steel common stock as of January 3, 2020, holders of shares of AK Steel common stock as of immediately prior to the closing of the Merger would hold, in the aggregate, approximately 32% of the issued and outstanding Cliffs common shares immediately following the closing of the Merger. The exact equity stake of AK Steel stockholders in Cliffs immediately following the Merger will depend on the number of Cliffs common shares and shares of AK Steel common stock issued and outstanding immediately prior to the effective time of the Merger, as described in the section entitled “The Merger Agreement—Merger Consideration” beginning on page [    ].

 

Q:

I am an AK Steel stockholder. Will the Cliffs common shares issued in the Merger receive a dividend?

 

A:

After the closing of the Merger, the Cliffs common shares issued in connection with the Merger will carry with them the right to receive (upon the exchange or surrender of your shares of AK Steel common stock) the same dividends on the Cliffs common shares as all other holders of Cliffs common shares with respect to any dividends or distributions that are declared with a record date at or after the effective time of the Merger.

Cliffs has declared a quarterly cash dividend on Cliffs common shares during each of the last five completed fiscal quarters, including a dividend of $0.06 per Cliffs common share that was declared on December 2, 2019 and is payable on January 15, 2020 to holders of record of Cliffs common shares as of January 3, 2020. Any future Cliffs dividends will remain subject to approval by the Cliffs board. See the section entitled Summary—Market and Dividend Information; Implied Value of Merger Consideration—Cliffs Trading Market and Dividend Information” beginning on page [    ].

 

Q:

What should I do now?

 

A:

You should read this joint proxy statement/prospectus carefully in its entirety, including the annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope or submit your voting instructions via the Internet or by telephone as soon as possible so that your Cliffs common shares or shares of AK Steel common stock will be voted in accordance with your instructions.

 

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Q:

Whom do I call if I have questions about the special meetings or how to vote?

 

A:

If you have questions about the Cliffs special meeting, the AK Steel special meeting, desire additional copies of this joint proxy statement/prospectus or additional proxies, or would like help in voting your shares, you may contact the applicable company’s proxy solicitor set forth below:

 

CLIFFS PROXY SOLICITOR    AK STEEL PROXY SOLICITOR

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

 

Banks and brokers call: +1-212-297-0720

Shareholders and all others call toll-free:

+ 1-877-869-0171

Email: info@okapipartners.com

  

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

 

Toll-free: +1-866-413-5899

 

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SUMMARY

This summary highlights selected information included in this document and does not contain all of the information that may be important to you. You should carefully read this entire document and its annexes and the other documents to which Cliffs and AK Steel refer before you decide how to vote with respect to the proposals to be considered and voted on at the Cliffs special meeting or AK Steel special meeting. In addition, Cliffs and AK Steel incorporate by reference important business and financial information about Cliffs and AK Steel into this document, as further described in the section entitled “Where You Can Find More Information” beginning on page [    ]. You may obtain the information incorporated by reference into this document without charge by following the instructions in the section entitled “Where You Can Find More Information” beginning on page [    ]. Each item in this summary includes a page reference directing you to a more complete description of that item.

Information About the Companies

Cleveland-Cliffs Inc.

200 Public Square

Cleveland, OH 44114

Phone: 1-800-214-0739

Founded in 1847, Cliffs is the largest and oldest independent iron ore mining company in the United States. Cliffs 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, Cliffs expects to be the sole producer of hot briquetted iron, or 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, Cliffs employees endeavor to provide all stakeholders with operating and financial transparency.

AK Steel Holding Corporation

9227 Centre Pointe Drive

West Chester, OH 45069

Phone: 513-425-5000

AK Steel was incorporated in Delaware in 1993. Through its wholly owned subsidiary, AK Steel Corporation, it is a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing, and distributors and converters markets. AK Steel’s downstream businesses also provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies. As the successor to Armco Inc., AK Steel continues a rich history of creating leading-edge steel innovations that began in 1899.

Pepper Merger Sub Inc.

c/o Cleveland-Cliffs Inc.

200 Public Square

Cleveland, OH 44114

Phone: 1-800-214-0739

Merger Sub is a direct, wholly owned subsidiary of Cliffs. Upon the completion of the Merger, Merger Sub will cease to exist. Merger Sub was incorporated in Delaware on November 26, 2019 for the sole purpose of



 

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effecting the Merger and to date has undertaken no activities other than those incident to its formation and the matters contemplated by the Merger Agreement in connection with the Merger.

The Merger and the Merger Agreement

The terms and conditions of the Merger are contained in the Merger Agreement, which is attached to this document as Annex A and is incorporated by reference herein in its entirety. Cliffs and AK Steel encourage you to read the Merger Agreement carefully, as it is the legal document that governs the Merger.

The Cliffs board and the AK Steel board have each unanimously approved the Merger Agreement. The Merger Agreement provides for Cliffs’ acquisition of AK Steel through the merger of Merger Sub with and into AK Steel, with AK Steel continuing as the surviving corporation in the Merger and as a direct, wholly owned subsidiary of Cliffs.

Subject to the terms and conditions set forth in the Merger Agreement, upon consummation of the Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the Merger (other than AK Steel restricted shares and shares of AK Steel common stock owned by Cliffs, Merger Sub or AK Steel) will be converted into the right to receive 0.400 Cliffs common shares (as well as cash in lieu of any fractional Cliffs common shares and any dividends or distributions on the Cliffs common shares with a record date at or after the effective time of the Merger).

Recommendation of the Cliffs Board

The Cliffs board recommends that you vote “FOR” the Cliffs merger proposal and “FOR” the Cliffs adjournment proposal.

Recommendation of the AK Steel Board

The AK Steel board recommends that you vote “FOR” the AK Steel merger proposal, “FOR” the AK Steel compensation proposal and “FOR” the AK Steel adjournment proposal.

Opinions of Financial Advisors

Opinion of Moelis, Cliffs’ financial advisor

Cliffs retained Moelis & Company LLC, which is referred to as Moelis, to act as its financial advisor in connection with the Merger. At the meeting of the Cliffs board on December 2, 2019 to evaluate and approve the Merger Agreement and the transactions contemplated by the Merger Agreement, Moelis delivered an oral opinion, which was confirmed by delivery of a written opinion, dated December 2, 2019, addressed to the Cliffs board as to the fairness, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and other limitations set forth in the opinion, of the exchange ratio in the Merger to Cliffs.

The full text of Moelis’ written opinion dated December 2, 2019, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. Moelis’ opinion was provided for the use and benefit of the Cliffs board (solely in its capacity as such) in its evaluation of the Merger. Moelis’ opinion was limited solely to the fairness, from a financial point of view, of the exchange ratio to Cliffs, and does not address Cliffs’ underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Cliffs. Moelis’ opinion does not constitute a recommendation as to how any holder of securities of Cliffs or AK Steel should vote or act with respect to the Merger or any other matter.

For a further discussion of Moelis’ opinion, see “The MergerOpinion of Moelis, Cliffs’ Financial Advisor” beginning on page [    ].



 

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Opinion of Goldman Sachs, AK Steel’s financial advisor

At a meeting of the AK Steel board held on December 2, 2019, representatives of Goldman Sachs & Co. LLC, which is referred to as Goldman Sachs, rendered to the AK Steel board the oral opinion of Goldman Sachs, subsequently confirmed by delivery of Goldman Sachs’ written opinion, dated December 2, 2019, to the AK Steel board, to the effect that, as of the date of Goldman Sachs’ written opinion and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to the holders (other than Cliffs and its affiliates) of shares of AK Steel common stock.

The full text of the written opinion of Goldman Sachs, dated December 2, 2019, which sets forth the assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with the opinion, is attached to this joint proxy statement/prospectus as Annex C and is incorporated herein by reference. The summary of Goldman Sachs’ opinion contained in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of the AK Steel board in connection with its consideration of the Merger and the opinion does not constitute a recommendation as to how any AK Steel stockholder should vote with respect to the Merger or any other matter.

For more information, see the section entitled “The Merger—Opinion of Goldman Sachs, AK Steel’s Financial Advisor” beginning on page [    ].

Special Meeting of Cliffs Shareholders

The Cliffs special meeting will be held on [                 ], 2020, at [                 ], Eastern Time, at [                 ]. The purpose of the Cliffs special meeting is to consider and vote on the Cliffs merger proposal and, if necessary, the Cliffs adjournment proposal. Approval of the Cliffs merger proposal is a condition to the obligations of Cliffs and AK Steel to complete the Merger.

Only holders of record of issued and outstanding Cliffs common shares as of the close of business on [                ], 2020, the record date for the Cliffs special meeting, are entitled to notice of, and to vote at, the Cliffs special meeting or any adjournment or postponement of the Cliffs special meeting. You may cast one vote for each Cliffs common share that you owned as of the close of business on the record date. As of the close of business on the record date, there were issued and outstanding a total of [                ] Cliffs common shares entitled to vote at the Cliffs special meeting. As of the close of business on January 3, 2020, approximately 1.5% of the issued and outstanding Cliffs common shares were held by Cliffs’ directors, executive officers and their affiliates.

A quorum of shareholders is necessary to hold a valid meeting. A quorum will exist at the Cliffs special meeting if shares representing not less than a majority of the voting power of Cliffs are present, in person or represented by proxy, with respect to any matter to be considered at the Cliffs special meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum, including abstentions. Cliffs common shares held in “street name” will be counted as present for the purpose of determining the existence of a quorum at the Cliffs special meeting so long as the beneficial owner of the shares has given its bank, broker or other nominee voting instructions on at least one of the proposals brought before the Cliffs special meeting. The proposals for consideration at the Cliffs special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, no “broker non-votes” can occur at the meeting. Cliffs common shares held in “street name” will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on either of the proposals.



 

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Approval of the Cliffs merger proposal requires the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. The failure to submit a proxy card or to vote in person at the Cliffs special meeting or the abstention from voting by Cliffs shareholders, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Cliffs merger proposal, will have the same effect as a vote “AGAINST” the Cliffs merger proposal.

Approval of the Cliffs adjournment proposal requires the affirmative vote of the holders of a majority of the Cliffs common shares present in person or represented by proxy at the Cliffs special meeting, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the Cliffs adjournment proposal, while the failure to submit a proxy card or to vote in person at the Cliffs special meeting, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee on the Cliffs merger proposal and the Cliffs adjournment proposal, will have no effect on the Cliffs adjournment proposal.

Both of the proposals for consideration at the Cliffs special meeting are considered “non-routine” matters under NYSE Rule 452. Under the NYSE rules, brokers are not permitted to exercise their voting discretion with respect to the approval of matters that the NYSE rules determine to be “non-routine.” A broker, therefore, does not have discretionary authority to vote on “non-routine” matters in the absence of specific instructions and cannot vote on any “non-routine” proposal if the broker has not received instructions from the beneficial owners of the shares on how to vote on the proposal. Because both of the proposals for consideration at the Cliffs special meeting are considered “non-routine” under the NYSE rules, brokers will not be permitted to vote on any of the matters to be considered at the Cliffs special meeting unless they have received specific instructions from the beneficial owners. As a result, if your Cliffs common shares are held in “street name,” they will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your Cliffs common shares in one of the ways indicated by your bank, broker or other nominee.

Special Meeting of AK Steel Stockholders

The AK Steel special meeting will be held on [                 ], 2020, at [                 ], Eastern Time, at [                ]. The purpose of the AK Steel special meeting is to consider and vote on the AK Steel merger proposal, the AK Steel compensation proposal and, if necessary, the AK Steel adjournment proposal. Approval of the AK Steel merger proposal is a condition to the obligations of Cliffs and AK Steel to complete the Merger.

Only holders of record of shares of AK Steel common stock issued and outstanding as of the close of business on [                ], 2020, the record date for the AK Steel special meeting, are entitled to notice of, and to vote at, the AK Steel special meeting or any adjournment or postponement thereof. You may cast one vote for each share of AK Steel common stock that you owned as of the close of business on the record date. As of the close of business on the record date, there were a total of [                ] shares of AK Steel common stock issued and outstanding and entitled to vote at the AK Steel special meeting. As of the close of business on January 3, 2020, less than 1.0% of the issued and outstanding shares of AK Steel common stock were held by AK Steel’s directors, executive officers and their affiliates.

A quorum of AK Steel stockholders is necessary to hold a valid meeting. A quorum will exist at the AK Steel special meeting if holders of record of shares of AK Steel common stock representing not less than a majority of the issued and outstanding shares of AK Steel common stock entitled to vote at the meeting are present, in person or represented by proxy. All shares of AK Steel common stock represented by proxy will be counted as present for purposes of establishing a quorum, including abstentions. AK Steel stockholders who hold their shares in “street name” will be counted as present for the purpose of determining the existence of a quorum



 

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at the AK Steel special meeting so long as the stockholder has given the bank, broker or other nominee voting instructions on at least one of the proposals brought before the AK Steel special meeting. The proposals for consideration at the AK Steel special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, brokers are not permitted to vote on any of the matters to be considered at the AK Steel special meeting unless they have received instructions from the beneficial owners. As a result, no “broker non-votes” can occur at the meeting, and shares held in “street name” will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on any of the proposals.

Approval of the AK Steel merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of AK Steel common stock entitled to vote on the proposal. The failure to submit a proxy card or to vote in person at the AK Steel special meeting or voting to abstain on the AK Steel merger proposal, will have the same effect as a vote “AGAINST” the AK Steel merger proposal. The failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee, will also have the same effect as a vote “AGAINST” the AK Steel merger proposal.

Approval of the AK Steel compensation proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the AK Steel compensation proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel compensation proposal, assuming a quorum is present at the AK Steel special meeting.

Approval of the AK Steel adjournment proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the AK Steel adjournment proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds common stock in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel adjournment proposal.

Executed proxies that do not include a vote on any proposal will be voted in accordance with the recommendation of the AK Steel board for such proposal.

All of the proposals for consideration at the AK Steel special meeting are considered “non-routine” matters under NYSE Rule 452. Under the NYSE rules, brokers are not permitted to exercise their voting discretion with respect to the approval of matters that the NYSE rules determine to be “non-routine.” A broker, therefore, does not have discretionary authority to vote on “non-routine” matters in the absence of specific instructions, and cannot vote on any “non-routine” proposal if the broker has not received instructions from the beneficial owners of the shares on how to vote on the proposal. Because all of the proposals for consideration at the AK Steel special meeting are considered “non-routine” under the NYSE rules, brokers will not be permitted to vote on any of the matters to be considered at the AK Steel special meeting unless they have received specific instructions from the beneficial owners. As a result, if your shares of AK Steel common stock are held in “street name” they will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares of AK Steel common stock in one of the ways indicated by your bank, broker or other nominee.



 

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Directors of Cliffs Following the Merger

The Cliffs board is currently comprised of 11 directors. Pursuant to the terms of the Merger Agreement, Cliffs will, effective as of the effective time of the Merger, (i) cause two members of the Cliffs board, determined by Cliffs in its sole discretion, to resign, (ii) increase the size of the Cliffs board by one member and (iii) cause three current members of the AK Steel board, as mutually agreed to by AK Steel and Cliffs, to be appointed to Cliffs’ board.

In the event that the Merger is completed prior to Cliffs’ annual meeting of shareholders for the year in which the Merger occurs, Cliffs will include the three former AK Steel directors in its slate for election at such year’s annual meeting.

Interests of AK Steel Directors and Executive Officers in the Merger

AK Steel’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of AK Steel stockholders generally. These interests include, but are not limited to, the treatment in the merger of AK Steel stock options, AK Steel restricted shares, AK Steel RSUs and AK Steel PSAs, as described in the section entitled “The Merger Agreement—Treatment of Outstanding AK Steel Equity Awards in the Merger” beginning on page [    ], the vesting of awards upon a qualifying termination of employment during the 24-month period following the closing of the Merger, certain enhanced nonqualified retirement benefits to which executive officers may become entitled on completion of the Merger, as well as the right of certain executive officers to receive enhanced severance upon a qualifying termination of employment during the 24-month period following the completion of the Merger under certain severance and change of control agreements. These interests are described in more detail in the section entitled “The Merger—Interests of AK Steel Directors and Executive Officers in the Merger” beginning on page [    ].

The members of the AK Steel board were aware of and considered these interests, among other matters, in evaluating, negotiating and approving the Merger Agreement and recommending that AK Steel stockholders vote to adopt the Merger Agreement.

Conditions to the Completion of the Merger

Under the Merger Agreement, the respective obligations of AK Steel, Cliffs and Merger Sub to complete the Merger are subject to the satisfaction or waiver (if permitted) at or prior to the effective time of the Merger of the following conditions:

 

   

Cliffs Shareholder Approval. The Merger Agreement and the transactions contemplated thereby, including the issuance of Cliffs common shares in connection with the Merger, must have been approved by a majority of the outstanding Cliffs common shares entitled to vote on such matter at the Cliffs special meeting.

 

   

AK Steel Stockholder Approval. The Merger Agreement must have been adopted by a majority of the outstanding shares of AK Steel common stock entitled to vote thereon at the AK Steel special meeting.

 

   

NYSE Listing. The Cliffs common shares issuable to AK Steel stockholders pursuant to the Merger Agreement must have been authorized for listing on the NYSE, subject to official notice of issuance.

 

   

Regulatory Consents. The waiting period under the HSR Act applicable to the completion of the Merger and the other transactions contemplated by the Merger Agreement must have expired or been terminated, and any approvals, notices or other requirements under the Canadian Competition Act and from the Mexican Competition Commission must have been made, obtained or satisfied.

 

   

Legal Restraints. There must not have been enacted, issued, promulgated, enforced or entered by a court or other governmental entity of competent jurisdiction any applicable law or order (whether



 

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temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits completion of the Merger or the other transactions contemplated by the Merger Agreement.

 

   

Effectiveness of the Registration Statement. The registration statement on Form S-4 of which this joint proxy statement/prospectus forms a part must have become effective under the Securities Act and must not be the subject of any stop order issued by the SEC suspending its effectiveness or any pending proceedings initiated by the SEC seeking such a stop order.

 

   

Tax Opinion. AK Steel must have received the tax opinion referred to in the section entitled “The Merger Agreement—Tax Treatment” beginning on page [    ], from its tax counsel. If AK Steel’s tax counsel is unwilling or unable to provide such tax opinion, (i) Cliffs’ tax counsel may, at the election of Cliffs, deliver the tax opinion to AK Steel or (ii) if Cliffs does not elect to have its tax counsel deliver the tax opinion, AK Steel must use its reasonable best efforts to obtain the tax opinion from another nationally recognized tax counsel reasonably acceptable to AK Steel.

Under the Merger Agreement, the obligations of Cliffs and Merger Sub to complete the Merger are subject to the satisfaction or waiver by Cliffs of the following additional conditions:

 

   

certain representations and warranties of AK Steel regarding aspects of its capitalization and the exercise price of outstanding AK Steel stock options must be true and correct as of the date of the Merger Agreement and as of the closing date as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date), except for immaterial inaccuracies;

 

   

certain representations and warranties of AK Steel regarding due organization and validity of existence; corporate authority, approval and receipt of an opinion of its financial advisor; and broker’s and finder’s fees must be true and correct in all material respects as of the date of the Merger Agreement and as of the closing date as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date);

 

   

the representations and warranties of AK Steel regarding the absence of any material adverse effect on AK Steel and its subsidiaries since September 30, 2019 must be true and correct as of the date of the Merger Agreement and as of the closing date as though made on and as of such date;

 

   

the other representations and warranties of AK Steel must be true and correct, without regard to materiality, company material adverse effect (as defined in the section entitled “The Merger Agreement—Representations and Warranties” beginning on page [    ]) or similar qualifiers, as of the date of the Merger Agreement and as of the closing date as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date), other than for such failures to be so true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have a company material adverse effect;

 

   

AK Steel must have performed and complied with in all material respects its obligations under the Merger Agreement required to be performed or complied with at or prior to the closing; and

 

   

Cliffs must have received a certificate signed by an executive officer of AK Steel to the effect that the foregoing closing conditions have been satisfied.

Under the Merger Agreement, the obligation of AK Steel to complete the Merger is subject to the satisfaction or waiver by AK Steel of the following additional conditions:

 

   

certain representations and warranties of Cliffs regarding aspects of its capitalization must be true and correct as of the date of the Merger Agreement and as of the closing date as though made on and as of



 

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such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date), except for immaterial inaccuracies;

 

   

certain representations and warranties of Cliffs and Merger Sub regarding due organization and validity of existence; corporate authority, approval and receipt of an opinion of its financial advisor; and broker’s and finder’s fees must be true and correct in all material respects as of the date of the Merger Agreement and as of the closing date as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date);

 

   

the representations and warranties of Cliffs and Merger Sub regarding the absence of any material adverse effect on Cliffs and its subsidiaries since September 30, 2019 must be true and correct as of the date of the Merger Agreement and as of the closing date as though made on and as of such date;

 

   

the other representations and warranties of Cliffs and Merger Sub must be true and correct without regard to materiality, parent material adverse effect (as defined in the section entitled “The Merger Agreement—Representations and Warranties” beginning on page [    ]) or similar qualifiers, as of the date of the Merger Agreement and as of the closing date as though made on and as of such date (except to the extent that any such representation and warranty expressly speaks as of another date, in which case such representation and warranty will only be required to be so true and correct as of such other date), other than for such failures to be so true and correct that, individually or in the aggregate, have not had and would not reasonably be expected to have a parent material adverse effect;

 

   

Cliffs and Merger Sub must have performed and complied with in all material respects all of their respective obligations under the Merger Agreement required to be performed or complied with by them at or prior to the closing; and

 

   

AK Steel must have received a certificate signed by an executive officer of each of Cliffs and Merger Sub on behalf of Cliffs and Merger Sub to the effect that the foregoing closing conditions have been satisfied.

No-Solicitation by Cliffs or AK Steel

As more fully described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—No-Solicitation” beginning on page [    ], subject to the exceptions described below and in the Merger Agreement, each of Cliffs and AK Steel has agreed not to, and to cause their respective subsidiaries and representatives not to, directly or indirectly, among other things:

 

   

initiate, solicit or knowingly encourage or facilitate the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal (as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Acquisition Proposal” beginning on page [    ]);

 

   

enter into, engage in, maintain, continue or otherwise participate in any discussions or negotiations with any third party that is reasonably likely to be considering or seeking to make, or has made since December 2, 2018, an acquisition proposal relating to, or that would reasonably be expected to lead to, an acquisition proposal;

 

   

make any non-public information or data available to any third party that is reasonably likely to be considering or seeking to make, or has made since December 2, 2018, an acquisition proposal relating to, or that would reasonably be expected to lead to, an acquisition proposal; or

 

   

enter into any agreement in principle, letter of intent, term sheet, memorandum of understanding or other contract relating to, or that would reasonably be expected to lead to, an acquisition proposal.



 

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At any time prior to (but not after) the time that the Cliffs merger proposal has been approved by Cliffs shareholders or the AK Steel merger proposal has been approved by AK Steel stockholders, as applicable, if Cliffs (or, as applicable, AK Steel) receives a bona fide acquisition proposal that did not result from a breach by it, its subsidiaries or representatives of the no-solicitation provisions of the Merger Agreement (as described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation” beginning on page [    ]) and that the applicable board of directors determines in good faith (after consultation with its outside legal counsel and financial advisor) constitutes or would reasonably be expected to result in a “superior proposal” (as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Superior Proposal” beginning on page [    ]), then it may take any of the following actions so long as the board has determined in good faith (after consultation with outside legal counsel) that its failure to take such action would be inconsistent with its fiduciary duties under applicable law:

 

   

engage in negotiations or discussions with the third party making the acquisition proposal regarding the acquisition proposal;

 

   

furnish to the third party making the acquisition proposal or its representatives information relating to such party and its subsidiaries, including material non-public information (pursuant to a confidentiality agreement with confidentiality terms that are no less restrictive, in the aggregate, than those contained in the confidentiality agreement between AK Steel and Cliffs); and

 

   

afford the third party making the acquisition proposal and its representatives access to its and its subsidiaries’ business, properties, assets, books and records pursuant to an acceptable confidentiality agreement.

Changes of Recommendation

Cliffs Restrictions on Changes of Recommendation

Subject to certain exceptions described below, the Cliffs board (and each committee thereof) may not, directly or indirectly:

 

   

fail to include in this joint proxy statement/prospectus its recommendation that Cliffs shareholders vote to approve the Cliffs merger proposal;

 

   

withdraw, or qualify or modify in a manner that is adverse to AK Steel, its recommendation that Cliffs shareholders vote to approve the Cliffs merger proposal, or publicly propose to do so;

 

   

make any public recommendation in connection with a tender offer or exchange offer other than a recommendation against such offer or a “stop, look and listen” communication of the type contemplated by Rule 14d-9(f) under the Exchange Act or fail to recommend against acceptance of such tender or exchange offer by close of business on the earlier of the 10th business day after the commencement of such offer and the second business day prior to the Cliffs special meeting;

 

   

adopt, approve, recommend to its shareholders, endorse or otherwise declare advisable any acquisition proposal for Cliffs, or resolve or agree to publicly propose to do so, except as set forth below; or

 

   

except with respect to tender and exchange offers (discussed above), fail to publicly reaffirm its recommendation that Cliffs shareholders approve the Cliffs merger proposal within three business days following receipt of a written notice from AK Steel requesting such a reaffirmation if such request is delivered after a Cliffs acquisition proposal has become publicly known (or if earlier, by the date that is two business days prior to the Cliffs special meeting).

The taking of any of the actions described in any of the five bullets above is referred to in this joint proxy statement/prospectus as an adverse Cliffs recommendation change.



 

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AK Steel Restrictions on Changes of Recommendation

Similarly, and subject to certain exceptions described below, the AK Steel board (and each committee thereof) may not, directly or indirectly:

 

   

fail to include in this joint proxy statement/prospectus its recommendation that AK Steel stockholders vote to approve the AK Steel merger proposal;

 

   

withdraw, or qualify or modify in a manner that is adverse to Cliffs or Merger Sub, its recommendation that AK Steel stockholders vote to approve the AK Steel merger proposal, or publicly propose to do so;

 

   

make any public recommendation in connection with a tender offer or exchange offer other than a recommendation against such offer or a “stop, look and listen” communication of the type contemplated by Rule 14d-9(f) under the Exchange Act or fail to recommend against acceptance of such tender or exchange offer by close of business on the earlier of the 10th business day after the commencement of such offer and the second business day prior to the AK Steel special meeting;

 

   

adopt, approve, recommend to its stockholders, endorse or otherwise declare advisable any acquisition proposal for AK Steel, or resolve or agree to publicly propose to do so, except as set forth below; or

 

   

except with respect to tender and exchange offers (discussed above), fail to publicly reaffirm its recommendation that AK Steel stockholders approve the AK Steel merger proposal within three business days following receipt of a written notice from Cliffs requesting such a reaffirmation if such request is delivered after an acquisition proposal for AK Steel has become publicly known (or if earlier, by the date that is two business days prior to the AK Steel special meeting).

The taking of any of the actions described in any of the five bullets above is referred to in this joint proxy statement/prospectus as an adverse AK Steel recommendation change.

Cliffs: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal

At any time prior to (but not after) the time that the Cliffs merger proposal has been approved by Cliffs shareholders, if Cliffs receives a bona fide acquisition proposal that did not result from a breach of the no-solicitation provisions of the Merger Agreement (as described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation” beginning on page [    ]), Cliffs may make an adverse Cliffs recommendation change or terminate the Merger Agreement and pay the termination fee to AK Steel in order to enter into a definitive agreement with respect to a superior proposal if the Cliffs board first:

 

   

determines in good faith after consultation with its outside legal counsel and financial advisor that such acquisition proposal constitutes a superior proposal;

 

   

determines in good faith after consultation with its outside legal counsel and financial advisor that the failure to take such action would be inconsistent with its fiduciary duties under applicable law; and

 

   

complies with the match right obligations under the Merger Agreement, which are described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Cliffs: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal” beginning on page [    ].

Cliffs: Permitted Changes of Recommendation in Connection with Intervening Events

At any time prior to (but not after) the time that the Cliffs merger proposal has been approved by Cliffs shareholders, if a Cliffs intervening event (as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Cliffs: Permitted Changes of



 

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Recommendation in Connection with Intervening Events” beginning on page [    ]) occurs, then the Cliffs board may make an adverse Cliffs recommendation change if the Cliffs board determines in good faith, after consultation with its outside legal counsel and financial advisor, that the failure to effect an adverse Cliffs recommendation change in response to such Cliffs intervening event would be inconsistent with its fiduciary duties under applicable law, so long as it first complies with the match right obligations under the Merger Agreement, which are described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Cliffs: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page [    ].

AK Steel: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal

At any time prior to the time that the AK Steel merger proposal has been approved by AK Steel stockholders, if AK Steel receives a bona fide acquisition proposal that did not result from a breach of the no-solicitation provisions of the Merger Agreement, the AK Steel board may make an adverse AK Steel recommendation change or terminate the Merger Agreement, pay the termination fee to Cliffs and enter into an alternative acquisition agreement with respect to an acquisition proposal if the AK Steel board:

 

   

determines in good faith after consultation with outside legal counsel and financial advisor that failure to take such actions would be inconsistent with its fiduciary duties under applicable law;

 

   

determines in good faith, after consultation with its outside legal counsel and financial advisor that such acquisition proposal constitutes a superior proposal; and

 

   

has complied with the match right obligations under the Merger Agreement, which are described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—AK Steel: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal” beginning on page [    ].

AK Steel: Permitted Changes of Recommendation in Connection with Intervening Events

At any time prior to (but not after) the time that the AK Steel merger proposal has been approved by AK Steel stockholders, if an AK Steel intervening event (as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—AK Steel: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page [    ]) occurs, then the AK Steel board may make an adverse AK Steel recommendation change if the AK Steel board determines in good faith, after consultation with its outside legal counsel and financial advisor, that the failure to effect an adverse AK Steel recommendation change in response to such AK Steel intervening event would be inconsistent with its fiduciary duties under applicable law, so long as AK Steel first complies with the match right obligations under the Merger Agreement, which are described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—AK Steel: Permitted Changes of Recommendation in Connection with Intervening Events” beginning on page [    ].

Termination

Cliffs and AK Steel may terminate the Merger Agreement and abandon the Merger at any time prior to the effective time of the Merger by mutual written consent of Cliffs and AK Steel.

The Merger Agreement may also be terminated by either Cliffs or AK Steel at any time prior to the effective time of the Merger in any of the following situations if the terminating party has not breached in any material respect its obligations under the Merger Agreement in any manner that has proximately contributed to the failure of a condition to the completion of the Merger or the failure of the completion of the Merger to occur:

 

   

the completion of the Merger does not occur by June 30, 2020, which is referred to as the end date; provided, that if either of the conditions set forth in the sections entitled “The Merger Agreement—



 

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Conditions to the Completion of the Merger—Regulatory Consents” and “The Merger Agreement —Conditions to the Completion of the Merger— Legal Restraints” beginning on page [    ], in each case, as the conditions relate to antitrust, are not satisfied or waived (i) by June 30, 2020, then Cliffs or AK Steel may extend the end date to September 30, 2020 or (ii) by September 30, 2020, then Cliffs or AK Steel may extend the end date to December 31, 2020, which is referred to as an end date termination event;

 

   

the Cliffs special meeting is held and the Cliffs shareholders do not approve the Cliffs merger proposal at such meeting or at any adjournment or postponement of such meeting, which is referred to as a Cliffs shareholder approval termination event;

 

   

the AK Steel special meeting is held and the AK Steel stockholders do not approve the AK Steel merger proposal at such meeting or at any adjournment or postponement of such meeting, which is referred to as an AK Steel stockholder approval termination event; or

 

   

any law or order permanently restraining, enjoining or otherwise prohibiting the completion of the Merger becomes final and non-appealable.

In addition, the Merger Agreement may be terminated by Cliffs at any time prior to the effective time of the Merger:

 

   

if an adverse AK Steel recommendation change has occurred;

 

   

if there is a breach of any representation, warranty, covenant or agreement made by AK Steel in the Merger Agreement, or any such representation and warranty or covenant becomes untrue after the date of the Merger Agreement, such that the condition to closing above relating to the accuracy of the representations and warranties of AK Steel or the condition to closing above relating to AK Steel performing its covenants or agreements under the Merger Agreement would not be satisfied, and such breach or condition is not curable, or, if curable, is not cured within the earlier of (i) 30 days after written notice thereof is given by Cliffs to AK Steel and (ii) the third business day prior to June 30, 2020 (as may be extended in accordance with the first bullet in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page [    ]), which is referred to as the AK Steel breach termination event;

 

   

if AK Steel has (i) materially breached certain of its no-solicitation obligations under the Merger Agreement as described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation” beginning on page [    ] or (ii) materially breached certain covenants by not filing this joint proxy statement/prospectus or by not holding the AK Steel special meeting, which together are referred to as an AK Steel meeting breach termination event; or

 

   

if, at any time prior to the approval by Cliffs shareholders of the Cliffs merger proposal, (i) the Cliffs board authorizes Cliffs to enter into a definitive written agreement constituting a superior proposal, as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Superior Proposal” beginning on page [    ], (ii) the Cliffs board has complied in all material respects with its obligations, including the match rights, described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Cliffs: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal” beginning on page [    ], and (iii) Cliffs has paid, or simultaneously with the termination of the Merger Agreement pays, a termination fee of $30 million to AK Steel.

Further, the Merger Agreement may be terminated by AK Steel at any time prior to the effective time of the Merger:

 

   

if an adverse Cliffs recommendation change has occurred;



 

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if there is a breach of any representation, warranty, covenant or agreement made by Cliffs or Merger Sub in the Merger Agreement, or any such representation and warranty or covenant becomes untrue after the date of the Merger Agreement, such that the condition to closing above relating to the accuracy of the representations and warranties of Cliffs and Merger Sub or the condition to closing above relating to Cliffs and Merger Sub performing their covenants or agreements under the Merger Agreement would not be satisfied, and such breach or condition is not curable, or, if curable, is not cured within the earlier of (i) 30 days after written notice thereof is given by AK Steel to Cliffs and (ii) the third business day prior to June 30, 2020 (as may be extended in accordance with the first bullet in the section entitled “The Merger Agreement—Termination—Termination Rights” beginning on page [    ]), which is referred to as a Cliffs breach termination event;

 

   

if Cliffs has (i) materially breached certain of its no-solicitation obligations under the Merger Agreement as described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation” beginning on page [    ] or (ii) materially breached certain covenants related to the filing of this joint proxy statement/prospectus and calling the Cliffs special meeting, which together are referred to as a Cliffs meeting breach termination event; or

 

   

if, at any time prior to the approval by AK Steel stockholders of the AK Steel merger proposal, (i) the AK Steel board authorizes AK Steel to enter into a definitive written agreement constituting a superior proposal, as defined in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—Definition of Superior Proposal” beginning on page [    ], (ii) the AK Steel board has complied in all material respects with its obligations, including the match rights, described in the section entitled “The Merger Agreement—No-Solicitation of Acquisition Proposals; Changes of Recommendation—AK Steel: Permitted Changes of Recommendation and Permitted Termination to Enter into a Superior Proposal” beginning on page [    ], and (iii) AK Steel has paid, or simultaneously with the termination of the Merger Agreement pays, a termination fee of $30 million to Cliffs.

For more information, see the section entitled “The Merger Agreement—Termination” beginning on page [    ].

Termination Fees

Termination Fees Payable by Cliffs

The Merger Agreement requires Cliffs to pay AK Steel a termination fee of $30 million, which is referred to as the termination fee, if:

 

   

AK Steel terminates the Merger Agreement due to an adverse Cliffs recommendation change;

 

   

AK Steel terminates the Merger Agreement due to a Cliffs meeting breach termination event;

 

   

Cliffs terminates the Merger Agreement to enter into an alternative acquisition agreement providing for the consummation of a superior proposal in accordance with the Merger Agreement; or

 

   

(i) the Merger Agreement is terminated by Cliffs or AK Steel because there has been an end date termination event or a Cliffs shareholder approval termination event, or by AK Steel because of a Cliffs breach termination event, (ii) an acquisition proposal with respect to Cliffs was publicly announced after December 2, 2019 and not publicly withdrawn before the date of termination (in the case of an end date termination event or a Cliffs breach termination event) or before the Cliffs special meeting (in the case of a Cliffs shareholder approval termination event) and (iii) within 12 months after such termination:

 

   

the Cliffs board recommends that Cliffs shareholders vote in favor of or tender into a Cliffs acquisition proposal;



 

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Cliffs enters into an alternative acquisition agreement providing for a Cliffs acquisition proposal; or

 

   

a Cliffs acquisition proposal is consummated.

In no event will Cliffs be required to pay the termination fee on more than one occasion.

Termination Fees Payable by AK Steel

The Merger Agreement requires AK Steel to pay Cliffs the termination fee of $30 million if:

 

   

Cliffs terminates the Merger Agreement due to an adverse AK Steel recommendation change;

 

   

Cliffs terminates the Merger Agreement due to an AK Steel meeting breach termination event;

 

   

AK Steel terminates the Merger Agreement to enter into an alternative acquisition agreement providing for the consummation of a superior proposal in accordance with the Merger Agreement; or

 

   

(i) the Merger Agreement is terminated by Cliffs or AK Steel because there has been an end date termination event or an AK Steel stockholder approval termination event, or by Cliffs because there has been an AK Steel breach termination event, (ii) an acquisition proposal with respect to AK Steel was publicly announced after December 2, 2019 and not withdrawn before the date of termination (in the case of an end date termination event or an AK Steel breach termination event) or before the AK Steel special meeting (in the case of an AK Steel stockholder approval termination event) and (iii) within 12 months after such termination:

 

   

the AK Steel board recommends that AK Steel stockholders vote in favor of or tender into an AK Steel acquisition proposal;

 

   

AK Steel enters into an alternative acquisition agreement providing for an AK Steel acquisition proposal; or

 

   

an AK Steel acquisition proposal is consummated.

In no event will AK Steel be required to pay the termination fee on more than one occasion.

Regulatory Approvals

U.S. Antitrust

The completion of the Merger is subject to the receipt of antitrust clearance in the United States. Under the HSR Act and the rules promulgated thereunder, the Merger may not be completed until notification and report forms have been filed with the United States Federal Trade Commission, which is referred to as the FTC, and the Antitrust Division of the United States Department of Justice, which is referred to as the DOJ, and the applicable waiting period (or any extension thereof) has expired or been terminated and the FTC or DOJ has not taken action to prevent the Merger from occurring.

On January 6, 2020, Cliffs and AK Steel each filed notification and report forms under the HSR Act with the FTC and the DOJ with respect to the proposed Merger. For additional information see the section entitled “The Merger Agreement—Reasonable Best Efforts; Regulatory Filings and Other Actions—Reasonable Best Efforts” beginning on page [    ].

Other Regulatory Approvals

The obligation of each of Cliffs and AK Steel to effect the Merger is also subject to obtaining regulatory approval from the antitrust authorities in Canada and Mexico. Cliffs and AK Steel will submit premerger



 

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notification forms and a joint request for an Advance Ruling Certificate with the Canadian Commissioner of Competition. On January 6, 2020, Cliffs and AK Steel submitted notifications and an application for Mexican Competition Commission (Comisión Federal de Competencia Económica) clearance of the Merger.

Cliffs and AK Steel have agreed to use their reasonable best efforts to take, or cause to be taken, all actions that are reasonably necessary, proper or advisable to obtain any consents, approvals and authorizations that are required under applicable antitrust laws and regulations, including the HSR Act and other applicable U.S. or foreign antitrust laws, to complete and effect the Merger as soon as practicable, subject to Cliffs not being required to agree to any divestitures with respect to Cliffs, AK Steel or their respective businesses.

No Appraisal Rights

No appraisal rights will be available to the holders of shares of AK Steel common stock or Cliffs common shares in connection with the Merger or the other transactions contemplated by the Merger Agreement. See the section entitled “Appraisal Rights” beginning on page [    ].

Material U.S. Federal Income Tax Consequences of the Merger

For a detailed discussion of the material U.S. federal income tax consequences of the Merger, see the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page [    ]. The tax consequences of the Merger to any particular AK Steel stockholder will depend on that stockholder’s particular facts and circumstances. Accordingly, please consult your tax advisor to determine the tax consequences to you from the Merger.

Comparison of Stockholders’ and Shareholders’ Rights

The rights of AK Steel stockholders will change as a result of the Merger due to differences in the laws of the respective states of incorporation of Cliffs and AK Steel and in AK Steel’s and Cliffs’ respective governing documents. The rights of AK Steel stockholders are governed by Delaware law, and by AK Steel’s certificate of incorporation and by-laws, each as amended to date. Upon the completion of the Merger, AK Steel stockholders will cease to hold shares of AK Steel and will become shareholders of Cliffs. Their rights as Cliffs shareholders will be governed by Ohio law, and by Cliffs’ articles of incorporation and regulations, each as amended to date. As a result, AK Steel stockholders will have different rights once they become shareholders of Cliffs due to the differences in the state law and governing documents of AK Steel and Cliffs. The key differences are described in the section entitled “Comparison of Stockholders’ and Shareholders’ Rights” beginning on page [    ].



 

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Selected Historical Consolidated Financial Data of Cliffs

The following table presents selected historical consolidated financial data for Cliffs as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 and as of and for the nine months ended September 30, 2019 and 2018. The selected historical consolidated financial data for each of the years ended December 31, 2018, 2017 and 2016 and as of December 31, 2018 and 2017 have been derived from Cliffs’ audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference herein. The selected historical consolidated financial data for each of the years ended December 31, 2015 and 2014 and as of December 31, 2016, 2015 and 2014 have been derived from Cliffs’ audited consolidated financial statements and related notes for such years, which have not been incorporated by reference herein. The selected historical consolidated financial data as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 have been derived from Cliffs’ unaudited condensed consolidated financial statements and related notes contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which is incorporated by reference herein. The selected historical consolidated balance sheet data as of September 30, 2018 has been derived from Cliffs’ unaudited condensed consolidated financial statements and related notes contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which has not been incorporated by reference herein. The interim unaudited financial data have been prepared on the same basis as the audited financial data, other than the absence of required footnotes and customary year-end adjustments, and include, in the opinion of Cliffs management, such adjustments, as Cliffs management believes are necessary to present fairly the data for such periods and may not necessarily be indicative of full-year results.

The information set forth below is not necessarily indicative of future results and should be read together with the other information contained in Cliffs’ Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes therein.

 

    Year Ended December 31,     Nine Months Ended
September 30,
 
    2018(a)     2017(b)     2016(c)     2015(d)     2014(e)     2019     2018  

Financial data (in millions, except for per share amounts)

             

Revenue from product sales and services

  $ 2,332.4     $ 1,866.0     $ 1,554.5     $ 1,525.4     $ 2,506.5     $ 1,455.8     $ 1,636.1  

Income from continuing operations

  $ 1,039.9     $ 360.6     $ 122.6     $ 134.3     $ 607.5     $ 231.1     $ 415.8  

Income (loss) from discontinued operations, net of tax

  $ 88.2     $ 2.5     $ 76.7     $ (882.7   $ (8,919.1   $ (1.5   $ 102.8  

Earnings (loss) per common share attributable to Cliffs common shareholders—basic

             

Continuing operations

  $ 3.50     $ 1.27     $ 0.49     $ 0.57     $ 3.46     $ 0.83     $ 1.40  

Discontinued operations

  $ 0.30     $ 0.01     $ 0.39     $ (5.71   $ (50.98   $ (0.01   $ 0.35  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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    Year Ended December 31,     Nine Months Ended
September 30,
 
    2018(a)     2017(b)     2016(c)     2015(d)     2014(e)     2019     2018  

Earnings (loss) per common share attributable to Cliffs common shareholders—basic

  $ 3.80     $ 1.28     $ 0.88     $ (5.14   $ (47.52   $ 0.82     $ 1.75  

Earnings (loss) per common share attributable to Cliffs common shareholders—diluted

             

Continuing operations

  $ 3.42     $ 1.25     $ 0.49     $ 0.57     $ 3.46     $ 0.80     $ 1.37  

Discontinued operations

  $ 0.29     $ 0.01     $ 0.38     $ (5.70   $ (50.98   $ —       $ 0.34  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per common share attributable to Cliffs common shareholders—diluted

  $ 3.71     $ 1.26     $ 0.87     $ (5.13   $ (47.52   $ 0.80     $ 1.71  

Total assets

  $ 3,529.6     $ 2,953.4     $ 1,923.9     $ 2,135.5     $ 3,147.2     $ 3,491.2     $ 3,125.0  

Long-term debt obligations (including finance leases)

  $ 2,104.5     $ 2,311.8     $ 2,178.6     $ 2,704.1     $ 2,834.6     $ 2,141.8     $ 2,312.4  

Cash dividends declared to preferred shareholders

             

- Per depositary share

  $ —       $ —       $ —       $ 1.32     $ 1.76     $ —       $ —    

- Total

  $ —       $ —       $ —       $ 38.4     $ 51.2     $ —       $ —    

Cash dividends declared to common shareholders

             

- Per share

  $ 0.05     $ —       $ —       $ —       $ 0.60     $ 0.21     $ —    

- Total

  $ 15.0     $ —       $ —       $ —       $ 92.5     $ 58.4     $ —    

 

(a)

On January 1, 2018, Cliffs adopted Accounting Standards Codification, which is referred to as ASC, Topic 606, Revenue from Contracts with Customers, which is referred to as ASC Topic 606, and applied it to all contracts that were not completed using the modified retrospective method. Cliffs recognized the cumulative effect of initially applying ASC Topic 606 as an adjustment of $34.0 million to the opening balance of Retained deficit. The comparative period information has not been retrospectively revised and continues to be reported under the accounting standards in effect for those periods.

(b)

During 2017, Cliffs issued 63.25 million Cliffs common shares in an underwritten public offering. Cliffs received net proceeds of $661.3 million at a public offering price of $10.75 per Cliffs common share. The net proceeds from the issuance of Cliffs common shares and the net proceeds from the issuance of $1.075 billion 5.75% 2025 Senior Notes were used to redeem in full all of Cliffs’ outstanding 8.25% 2020 First Lien Notes, 8.00% 2020 1.5 Lien Notes and 7.75% 2020 Second Lien Notes. Additionally, through tender offers, Cliffs purchased certain of its 5.90% 2020 Senior Notes, 4.80% 2020 Senior Notes and 4.875% 2021 Senior Notes. The aggregate principal amount outstanding of debt redeemed was $1.611 billion, which resulted in a loss on extinguishment of $165.4 million. During 2017, Cliffs’ ownership interest in Empire Iron Mining Partnership increased to 100% as it reached an agreement to distribute the noncontrolling interest net assets of $132.7 million to ArcelorMittal, in exchange for its interest in Empire Iron Mining Partnership. Cliffs also acquired the remaining 15% equity interest in Tilden Mining Company L.C. owned by United States Steel Corporation for $105.0 million. Prior to the end of the year Public Law 115–97, commonly known as the “Tax Cuts and Jobs Act”, was signed into law and among other items repealed the corporate Alternative Minimum Tax, which is referred to as AMT, and reduced the federal corporate tax rate to 21% for tax years beginning January 1, 2018. Along with the repeal of AMT, Public Law 115–97 provided that existing AMT credit carryovers are refundable beginning with the filing of the calendar year 2018 tax return. Cliffs had $235.3 million of AMT credit carryovers that are expected to be fully refunded between 2019 and 2022.



 

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(c)

During 2016, Cliffs recorded a net gain of $166.3 million related to debt restructuring activities that occurred throughout the year, including the issuance of $218.5 million aggregate principal of Cliffs’ 8.00% 2020 1.5 Lien Notes in exchange for $512.2 million of Cliffs’ existing senior notes, the issuance of an aggregate of 8.2 million Cliffs common shares in exchange for $56.9 million aggregate principal amount of Cliffs’ existing senior notes and a loss on the redemption of the full $283.6 million outstanding of Cliffs’ 3.95% 2018 Senior Notes at a total redemption price of $301.0 million. Cliffs also issued 44.4 million Cliffs common shares in an underwritten public offering. Cliffs received net proceeds of $287.6 million at a public offering price of $6.75 per Cliffs common share.

(d)

During 2015, Cliffs’ Eastern Canada Iron Ore segment commenced restructuring proceedings in Montreal, Quebec under the Companies’ Creditors Arrangement Act (Canada). As a result of these proceedings, the Canadian entities were deconsolidated and all financial results were classified within discontinued operations. During 2015, Cliffs’ North American Coal operating segment continued to meet the criteria to be classified as held for sale under ASC Topic 205, Presentation of Financial Statements, until the operations were sold during the fourth quarter, and as a result, all financial results were classified within discontinued operations.

(e)

During 2014, Cliffs recorded an impairment of other long-lived assets of $11.2 million related to Cliffs continuing operations. Cliffs also recorded goodwill and other long-lived asset impairment charges related to its discontinued operations of $9,018.7 million. The impairment charges were primarily a result of changes in life-of-mine cash flows due to declining pricing for both global iron ore and low-volatile metallurgical coal, along with changes in strategic focus of the divestiture of the Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal and Ferroalloys operations. The Cliffs Logan County Coal LLC assets were sold in the fourth quarter of 2014 on December 31, 2014, resulting in a loss on sale of $419.6 million. For the year ended December 31, 2014, Cliffs had a loss attributable to noncontrolling interest of $1,087.4 million, of which, $1,114.3 million related to discontinued operations.



 

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Selected Historical Consolidated Financial Data of AK Steel

The following table presents selected historical consolidated financial data of AK Steel as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 and as of and for the nine months ended September 30, 2019 and 2018. The selected historical consolidated financial data for each of the years ended December 31, 2018, 2017 and 2016 and as of December 31, 2018 and 2017 have been derived from AK Steel’s audited consolidated financial statements and related notes included in AK Steel’s Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference herein. The selected historical consolidated financial data for each of the years ended December 31, 2015 and 2014 and as of December 31, 2016, 2015 and 2014 have been derived from AK Steel’s audited consolidated financial statements and related notes for such years, which have not been incorporated by reference herein. The selected historical consolidated financial data as of September 30, 2019 and for the nine months ended September 30, 2019 and 2018 have been derived from AK Steel’s unaudited condensed consolidated financial statements and related notes contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, which is incorporated by reference herein. The selected historical consolidated balance sheet data as of September 30, 2018 has been derived from AK Steel’s unaudited condensed consolidated financial statements and related notes contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, which has not been incorporated by reference herein. The interim unaudited financial data have been prepared on the same basis as the audited financial data, other than the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), on January 1, 2019, and the absence of required footnotes and customary year-end adjustments, and include, in the opinion of AK Steel’s management, such adjustments as AK Steel management believes are necessary to present fairly the data for such periods and may not necessarily be indicative of full-year results.

The information set forth below is not necessarily indicative of future results and should be read together with the other information contained in AK Steel’s Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and related notes therein. See “Where You Can Find More Information” beginning on page [    ].

 

    Year Ended December 31,     Nine Months Ended
September 30,
 
    2018     2017     2016     2015     2014     2019     2018  
    (in millions, except for per share amounts or as otherwise noted)  

Statement of Operations Data

             

Net sales

  $ 6,818.2     $ 6,080.5     $ 5,882.5     $ 6,692.9     $ 6,505.7     $ 4,913.7     $ 5,141.1  

Operating profit (loss)

  $ 364.4     $ 260.2     $ 217.6     $ (67.4   $ 17.6     $ 198.9     $ 277.9  

Net income (loss) attributable to AK Steel Holding Corporation(a)

  $ 186.0     $ 103.5     $ (16.8   $ (652.3   $ (114.2   $ 65.1     $ 152.5  

Earnings (loss) per share attributable to AK Steel stockholders

             

- Basic

  $ 0.59     $ 0.33     $ (0.07   $ (3.67   $ (0.77   $ 0.21     $ 0.48  

- Diluted(a)

  $ 0.59     $ 0.32     $ (0.07   $ (3.67   $ (0.77   $ 0.21     $ 0.48  

Other Data

 

Total flat-rolled shipments (in thousands of tons)

    5,683.4       5,596.2       5,936.4       6,974.0       6,007.2       4,082.8       4,294.7  

Selling price per flat-rolled ton

  $ 1,091     $ 1,022     $ 955     $ 929     $ 1,042     $ 1,094     $ 1,087  

Balance Sheet Data

 

Total assets(b)

  $ 4,515.7     $ 4,474.8     $ 4,101.7     $ 4,157.8     $ 5,052.8     $ 4,604.6     $ 4,487.9  

Long-term debt

  $ 1,993.7     $ 2,110.1     $ 1,816.6     $ 2,354.1     $ 2,422.0     $ 1,969.7     $ 2,034.9  


 

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    Year Ended December 31,     Nine Months Ended
September 30,
 
    2018     2017     2016     2015     2014     2019     2018  
    (in millions, except for per share amounts or as otherwise noted)  

Cash dividends declared to AK Steel stockholders

             

- Per share

  $ —       $ —       $ —       $ —       $ —       $ —       $ —    

- Total

  $ —       $ —       $ —       $ —       $ —       $ —       $ —    

 

(a)

In the nine months ended September 30, 2019, AK Steel recorded a charge of $77.4 million ($0.24 per diluted share) to permanently close its Ashland Works facility. Under its method of accounting for pensions and other postretirement benefits, which are referred to as OPEB, AK Steel recorded pension corridor charges of $78.4 million ($0.34 per diluted share), $144.3 million ($0.81 per diluted share) and $2.0 million ($0.01 per diluted share) in 2016, 2015 and 2014, and OPEB corridor credits of $35.3 million ($0.15 per diluted share) and $13.1 million ($0.07 per diluted share) in 2016 and 2015. In 2018, AK Steel also recorded pension settlement charges of $14.5 million ($0.05 per diluted share). In 2017, AK Steel recorded an asset impairment charge of $75.6 million ($0.24 per diluted share) related to the temporarily idled Ashland Works Hot End and a credit of $19.3 million ($0.06 per diluted share) for the reversal of a liability for transportation costs. In 2016, AK Steel also recorded pension settlement charges of $25.0 million ($0.11 per diluted share) and costs of $69.5 million ($0.30 per diluted share) to terminate a pellet offtake agreement and for related transportation costs. In 2015, AK Steel also recorded a charge for a temporary facility idling of $28.1 million ($0.16 per diluted share) and impairments of its investments in its former Magnetation LLC joint venture of $256.3 million ($1.44 per diluted share) and AFSG Holdings, Inc. of $41.6 million ($0.23 per diluted share).

(b)

AK Steel adopted Accounting Standards Update No. 2016-02, Leases (Topic 842), as of January 1, 2019 through the modified retrospective method and recorded additional lease assets and liabilities of $291.1 million as of January 1, 2019.



 

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Selected Unaudited Pro Forma Condensed Combined Financial Data

The following table presents selected unaudited pro forma condensed combined financial data of Cliffs after giving effect to the Merger, which is referred to as the “selected pro forma financial data.” The information under “Pro Forma Statements of Income Data” in the table below gives effect to the Merger as if it had been consummated on January 1, 2018, the beginning of the earliest period for which unaudited pro forma condensed combined financial statements have been presented. The information under “Pro Forma Balance Sheet Data” in the table below assumes the Merger had been consummated on September 30, 2019. This pro forma financial data was prepared using the acquisition method of accounting with Cliffs considered the accounting acquirer of AK Steel. See the section entitled “The Merger—Accounting Treatment of the Merger” beginning on page [    ].

The selected pro forma financial data reflects preliminary pro forma adjustments that have been made solely for the purpose of providing the pro forma financial data presented in this joint proxy statement/prospectus. Cliffs estimated the fair value of AK Steel’s assets and liabilities based on discussions with AK Steel’s management, due diligence information, preliminary valuation analyses performed by a third-party specialist and reviewed by Cliffs, information presented in AK Steel’s SEC filings and other publicly available information. Until the Merger is completed, both companies are limited in their ability to share certain information. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed.

Upon completion of the Merger, a final determination of the fair value of AK Steel’s assets and liabilities will be performed. Any changes in the fair values of the net assets or total purchase consideration as compared with the information shown in the pro forma financial data may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined company statements of income due to adjustments in depreciation and amortization of the adjusted assets or liabilities and related deferred income tax effects. The final purchase consideration allocation may be materially different than the preliminary purchase consideration allocation presented in the pro forma financial data.

The information presented below should be read in conjunction with the historical consolidated financial statements and related notes of Cliffs and AK Steel, as filed by each with the SEC in their respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 and Quarterly Reports on Form 10-Q for the quarter ended September 30, 2019, which are incorporated by reference into this joint proxy statement/prospectus, and with the unaudited pro forma condensed combined financial statements of Cliffs and AK Steel, including the related notes, appearing in the sections entitled “Unaudited Pro Forma Condensed Combined Financial Statements” and “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” beginning on pages [    ] and [    ], respectively. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of results that actually would have occurred or that may occur in the future had the Merger been completed on the dates indicated, or the future operating results or financial position of the combined company following the Merger. Future results may



 

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vary significantly from the results reflected because of various factors, including those discussed in the section entitled “Risk Factors” beginning on page [    ].

 

(In millions, except per share amounts)    Nine Months Ended
September 30, 2019
    Year Ended
December 31,
2018
 

Pro forma Statements of Income Data:

    

Revenues from product sales and services

   $ 5,950.0     $ 8,551.8  

Income from continuing operations

   $ 284.0     $ 1,158.0  

Income (loss) from discontinued operations, net of tax

   $ (1.5   $ 88.2  

Earnings per common share attributable to common shareholders

    

Basic

   $ 0.60     $ 2.80  

Diluted

   $ 0.58     $ 2.75  

Cash dividends declared to common shareholders(1)

     N/A       N/A  

 

(In millions)    September 30, 2019  

Pro forma Balance Sheet Data:

  

Total assets

   $ 8,813.7  

Long-term debt obligations (including finance leases)

   $ 4,265.1  

 

(1)

Pro forma dividends per share data is not presented, as the dividend per share for the combined company will be determined by the board of directors of the combined company following the completion of the Merger.



 

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Comparative Historical and Unaudited Pro Forma Per Share Financial Data

Presented below are Cliffs’ and AK Steel’s historical and unaudited pro forma per share financial data for the nine months ended September 30, 2019 and the year ended December 31, 2018. Except for the historical financial data for the year ended December 31, 2018, the financial data provided in the table below is unaudited. This financial data should be read together with the historical consolidated financial statements and related notes of Cliffs and AK Steel, as filed by each with the SEC in their respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2018 and Quarterly Reports on Form 10-Q for the quarter ended September 30, 2019, which are incorporated by reference into this joint proxy statement/prospectus, and with the unaudited pro forma condensed combined financial statements, including the related notes, appearing in the sections entitled “Unaudited Pro Forma Condensed Combined Financial Statements” and “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” beginning on pages [    ] and [    ], respectively.

The pro forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been completed as of the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company. The pro forma financial data, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings (or associated costs or capital expenditures to achieve such savings), opportunities to earn additional revenue, the impact of restructuring, or other factors that may result as a consequence of the Merger and, accordingly, does not attempt to predict or suggest future results.

The historical net book value per share is computed by dividing stockholders’ or shareholders’ equity, as applicable, by the number of shares of AK Steel common stock or Cliffs common shares, as applicable, outstanding at the end of the period. The pro forma earnings per share of the combined company is computed by dividing the pro forma earnings by the pro forma weighted average number of shares outstanding. The pro forma net book value per share of the combined company is computed by dividing total pro forma shareholders’ equity by the pro forma number of common shares outstanding at September 30, 2019, the date upon which the pro forma balance sheet assumes the Merger had been completed.

 

     Nine Months Ended
September 30, 2019
     Year Ended
December 31,
2018
 

Cliffs historical data:

     

Earnings per common share attributable to Cliffs common shareholders per basic share

   $ 0.82      $ 3.80  

Earnings per common share attributable to Cliffs common shareholders per diluted share

     0.80        3.71  

Cash dividends declared per share

     0.21        0.05  

Net book value per share

     1.33        1.45  

AK Steel historical data:

     

Net income per share attributable to AK Steel common stockholders per basic share

   $ 0.21      $ 0.59  

Net income per share attributable to AK Steel common stockholders per diluted share

     0.21        0.59  

Cash dividends declared per share

     —          —    

Net book value per share

     0.43        0.32  


 

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     Nine Months Ended
September 30, 2019
     Year Ended
December 31,
2018
 

Pro forma combined data:

     

Earnings per common share attributable to common shareholders per basic share

   $ 0.60      $ 2.80  

Earnings per common share attributable to common shareholders per diluted share

     0.58        2.75  

Cash dividends declared per share(1)

     N/A        N/A  

Net book value per share

     2.93        N/A  

Pro forma combined equivalent data(2):

     

Earnings per common share attributable to common shareholders per basic share

   $ 0.24      $ 1.12  

Earnings per common share attributable to common shareholders per diluted share

     0.23        1.10  

Cash dividends declared per share(1)

     N/A        N/A  

Net book value per share

     1.17        N/A  

 

(1)

Pro forma dividends per share data is not presented, as the dividend per share for the combined company will be determined by the board of directors of the combined company following the completion of the Merger.

(2)

Determined using the pro forma combined per share data multiplied by 0.400 (the exchange ratio in the Merger of 0.400 Cliffs common shares for each outstanding share of AK Steel common stock).



 

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Market And Dividend Information; Implied Value of Merger Consideration

Cliffs Trading Market and Dividend Information

Cliffs common shares are listed on the NYSE under the symbol “CLF.” Cliffs has declared a quarterly cash dividend during each of the last five completed fiscal quarters, including a dividend of $0.06 per Cliffs common share declared on December 2, 2019, which is payable on January 15, 2020 to holders of record of Cliffs common shares as of January 3, 2020.

You should obtain current market quotations for Cliffs common shares, as the market price of Cliffs common shares will fluctuate between the date of this joint proxy statement/prospectus and the date on which the Merger is completed, at times in between and thereafter. You can obtain these quotations from publicly available sources.

The declaration of dividends, whether before or after the Merger, is at the discretion of the Cliffs board. Any determination to pay dividends on Cliffs common shares in the future will be at the discretion of the Cliffs board and dependent upon then-existing conditions, including Cliffs operating results and financial condition, capital requirements, contractual restrictions, business prospects and other factors that the Cliffs board may deem relevant. Under the Merger Agreement, Cliffs is permitted to continue paying regularly quarterly cash dividends to its shareholders in accordance with past practice to the extent doing so would be in compliance with the terms of Cliffs’ agreements governing its debt and other contractual obligations.

AK Steel Trading Market and Dividend Information

AK Steel common stock is listed on the NYSE under the symbol “AKS.”

You should obtain current market quotations for shares of AK Steel common stock, as the market price of AK Steel common stock will fluctuate between the date of this joint proxy statement/prospectus and the date on which the Merger is completed. You can obtain these quotations from publicly available sources.

AK Steel has not paid dividends on shares of AK Steel common stock during the last five years and does not intend to do so prior to the completion of the Merger. Under the Merger Agreement, AK Steel is not permitted to pay dividends on shares of AK Steel common stock without Cliffs’ prior consent.

Comparison of Cliffs and AK Steel Market Prices and Implied Value of Merger Consideration

The following table sets forth the closing sale price for Cliffs common shares and AK Steel common stock on the NYSE on December 2, 2019, the last trading day prior to the public announcement of the Merger, and on January 3, 2020, the latest practicable trading day before the filing of this joint proxy statement/prospectus with the SEC. The table also shows the estimated implied value of the merger consideration for each share of AK Steel common stock as of the same two dates. This implied value was calculated by multiplying the closing price of a Cliffs common share on the relevant date by the exchange ratio in the Merger of 0.400 Cliffs common shares for each share of AK Steel common stock.

 

     Cliffs
Common Shares
     AK Steel
Common Stock
     Implied Value of
Merger
Consideration
 

December 2, 2019

   $ 8.41      $ 2.89      $ 3.36  

January 3, 2020

   $ 7.82      $ 3.11      $ 3.13  

The market prices of Cliffs common shares and AK Steel common stock have fluctuated since the date of the announcement of the parties’ entry into the Merger Agreement and will continue to fluctuate prior to, and in



 

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the case of Cliffs common shares, after, completion of the Merger. No assurance can be given concerning the market prices of Cliffs common shares or AK Steel common stock before completion of the Merger or of Cliffs common shares after completion of the Merger. The exchange ratio is fixed in the Merger Agreement, but the market price of Cliffs common shares will continue to fluctuate. As a result, the value of the merger consideration, when received by AK Steel stockholders after the Merger is completed, could be greater than, less than or the same as shown in the table above. Accordingly, these comparisons may not provide meaningful information to AK Steel stockholders in determining whether to vote to approve the AK Steel merger proposal, or to Cliffs shareholders in determining whether to vote to approve the Cliffs merger proposal. Cliffs shareholders and AK Steel stockholders are encouraged to obtain current market quotations for Cliffs common shares and AK Steel common stock and to review carefully the other information contained in this joint proxy statement/prospectus or incorporated by reference herein. For more information, see the section entitled “Where You Can Find More Information” beginning on page [    ].



 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference herein, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [    ], AK Steel stockholders should carefully consider the following risks before deciding how to vote with respect to the proposals to be considered and voted on at the AK Steel special meeting, and Cliffs shareholders should carefully consider the following risks before deciding how to vote with respect to the proposals to be considered and voted on at the Cliffs special meeting. AK Steel stockholders and Cliffs shareholders should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference herein, particularly the risk factors contained in Cliffs’ and AK Steel’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. See the section entitled “Where You Can Find More Information” beginning on page [    ].

Risks Relating to the Merger

Because the market price of Cliffs common shares will fluctuate, AK Steel stockholders cannot be certain of the market value of the consideration they will receive in the Merger until the Merger is completed.

Subject to the terms and conditions set forth in the Merger Agreement, upon consummation of the Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the Merger (other than AK Steel restricted shares and shares of AK Steel common stock owned by Cliffs, Merger Sub or AK Steel) will be converted into the right to receive 0.400 Cliffs common shares (as well as cash in lieu of any fractional Cliffs common shares and any dividends or distributions on the Cliffs common shares with a record date at or after the effective time of the Merger). The exchange ratio in the Merger is fixed, and there will be no adjustment to the merger consideration for changes in the market price of Cliffs common shares or AK Steel common stock prior to the completion of the Merger.

If the Merger is completed, there will be a time lapse between the date of this joint proxy statement/prospectus, the dates on which AK Steel stockholders vote to approve the AK Steel merger proposal at the AK Steel special meeting and Cliffs shareholders vote to approve the Cliffs merger proposal at the Cliffs special meeting, and the date on which AK Steel stockholders actually receive the merger consideration. The market value of Cliffs common shares may fluctuate during and after these periods as a result of a variety of factors, including general market and economic conditions, changes in Cliffs’ business, operations and prospects and regulatory considerations. Such factors are difficult to predict and in many cases may be beyond the control of Cliffs and AK Steel. Consequently, at the time AK Steel stockholders must decide whether to adopt the Merger Agreement, they will not know the actual market value of the merger consideration they will receive for each of their shares of AK Steel common stock when the Merger is completed.

The actual value of the merger consideration received by AK Steel stockholders at the completion of the Merger will depend on the market value of the Cliffs common shares at that time. This market value may differ, possibly materially, from the market value of Cliffs common shares at the time the Merger Agreement was entered into or at any other time. AK Steel stockholders should obtain current stock quotations for Cliffs common shares, which are traded on the NYSE under the ticker symbol, “CLF,” before voting their shares of AK Steel common stock. For additional information about the AK Steel merger consideration, see the section entitled “The Merger Agreement—Merger Consideration” beginning on page [    ].

The market price of Cliffs common shares will continue to fluctuate after the Merger.

Upon completion of the Merger, holders of AK Steel common stock will become holders of Cliffs common shares. The market price of Cliffs common shares may fluctuate significantly following completion of the Merger and holders of AK Steel common stock could lose some or all of the value of their investment in Cliffs common shares. In addition, any significant price or volume fluctuations in the stock market generally could have a material adverse effect on the market for, or liquidity of, the Cliffs common shares, regardless of Cliffs’ actual operating performance.

 

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Former AK Steel stockholders will have a lesser ownership and voting interest in the combined company after the Merger than they do in AK Steel today and will exercise less influence over management.

Currently, AK Steel stockholders have the right to vote in the election of directors to the AK Steel board and the power to approve or reject any matters requiring stockholder approval under Delaware law and AK Steel’s certificate of incorporation and by-laws. Following the completion of the Merger, each former AK Steel stockholder’s ownership interest in Cliffs, in respect of such shareholder’s former shares of AK Steel common stock, will be less than the AK Steel stockholder’s current percentage ownership of AK Steel. Based on the number of issued and outstanding Cliffs common shares and shares of AK Steel common stock as of January 3, 2020 and the exchange ratio of 0.400, former AK Steel stockholders are expected to own approximately 32% of the outstanding Cliffs common shares after the Merger, without giving effect to any Cliffs common shares held by AK Steel stockholders prior to the completion of the Merger. Even if all former AK Steel stockholders voted together on all matters presented to Cliffs shareholders from time to time, the former AK Steel stockholders would exercise significantly less influence over Cliffs after the completion of the Merger relative to their influence over AK Steel prior to the completion of the Merger, and thus would have a less significant impact on the election of the Cliffs board and on the approval or rejection of future Cliffs proposals submitted to a shareholder vote.

The Cliffs common shares received by AK Steel stockholders as a result of the Merger will have different rights from shares of AK Steel common stock.

Upon completion of the Merger, AK Steel stockholders will no longer be stockholders of AK Steel, and AK Steel stockholders will become shareholders of Cliffs. There will be important differences between the current rights of AK Steel stockholders and the rights such stockholders will have as shareholders of Cliffs, including that Cliffs shareholders do not have any specific rights under the ORC or Cliffs’ organizational documents to make shareholder proposals. See the section entitled “Comparison of Stockholders’ and Shareholders’ Rights” beginning on page [    ] for a discussion of the rights associated with AK Steel common stock and Cliffs common shares.

The market price of Cliffs common shares may be affected by factors different from those that historically have affected shares of AK Steel common stock.

Upon completion of the Merger, holders of AK Steel common stock will become holders of Cliffs common shares. The business of Cliffs differs from that of AK Steel, and, accordingly, the financial position or results of operations or cash flows of Cliffs after the Merger, as well as the market price of Cliffs common shares, may be affected by factors different from those currently affecting the financial position or results of operations or cash flows of AK Steel. Following the completion of the Merger, AK Steel will be part of a larger company with other lines of business and a broader geographic footprint, so decisions affecting AK Steel may be made in respect of the larger combined business as a whole rather than the AK Steel business individually.

The Merger Agreement limits Cliffs’ ability and AK Steel’s ability to pursue alternatives to the Merger.

The Merger Agreement contains provisions that may discourage a third party from submitting an acquisition proposal to Cliffs or AK Steel that might result in greater value to Cliffs shareholders or AK Steel stockholders than the Merger, or may result in a potential acquirer of Cliffs, or a potential competing acquirer of AK Steel proposing to pay a lower per share price to acquire Cliffs or AK Steel, respectively, than it might otherwise have proposed to pay. These provisions include a general prohibition on Cliffs and AK Steel from soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by the Cliffs board or the AK Steel board, entering into discussions with any third party regarding any acquisition proposal or offer for a competing transaction, and a termination fee that is payable if the Merger Agreement is terminated to accept a superior acquisition proposal. See the section entitled “The Merger Agreement—Termination” beginning on page [    ].

 

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The Merger Agreement may be terminated in accordance with its terms and the Merger may not be completed.

The Merger Agreement contains a number of conditions that must be satisfied or waived in order to complete the Merger. Those conditions include, among others:

 

   

the adoption of the Merger Agreement by AK Steel stockholders;

 

   

the approval by Cliffs shareholders of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger;

 

   

the approval to list the Cliffs common shares issuable in connection with the Merger on the NYSE;

 

   

the expiration or termination of the waiting period applicable to the Merger under the HSR Act and receipt of required regulatory approvals in Canada and Mexico;

 

   

the absence of any governmental order or law prohibiting the consummation of the Merger;

 

   

the effectiveness of the registration statement of which this joint proxy statement/prospectus forms a part;

 

   

the accuracy of Cliffs’ and AK Steel’s respective representations and warranties under the Merger Agreement (subject to the materiality standards set forth in the Merger Agreement);

 

   

Cliffs’ and AK Steel’s performance of their respective obligations under the Merger Agreement in all material respects;

 

   

the absence of a material adverse effect on Cliffs (as described in the Merger Agreement); and

 

   

AK Steel’s receipt of a written opinion of AK Steel’s tax counsel (or, if AK Steel’s tax counsel is unwilling or unable to deliver such tax opinion, Cliffs’ tax counsel, or, if Cliffs’ tax counsel does not deliver such an opinion, subject to AK Steel using reasonable best efforts to obtain the tax opinion from another nationally recognized tax counsel reasonably acceptable to AK Steel) regarding the U.S. federal income tax treatment of the transaction.

These conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may be delayed or may not be completed.

In addition, if the Merger is not completed by June 30, 2020 (subject to Cliffs and AK Steel each being entitled to extend the date to September 30, 2020 and then December 31, 2020 if required antitrust approvals have not yet been obtained or there is an impediment under any antitrust law), either Cliffs or AK Steel may choose not to proceed with the Merger. The parties can mutually decide to terminate the Merger Agreement at any time, before or after the receipt of AK Steel stockholder approval or Cliffs shareholder approval. See the section entitled “The Merger Agreement—Termination” beginning on page [    ] for more detail on these and other circumstances in which Cliffs and AK Steel may elect to terminate the Merger Agreement.

Failure to complete the Merger could negatively impact the price of Cliffs common shares and the price of shares of AK Steel common stock, as well as Cliffs’ and AK Steel’s respective future businesses and financial results.

If the Merger is not completed for any reason, including the failure of Cliffs shareholders to approve the Cliffs merger proposal or AK Steel stockholders to adopt the Merger Agreement, Cliffs’ and AK Steel’s respective businesses and financial results may be adversely affected, including as follows:

 

   

Cliffs and AK Steel may experience negative reactions from the financial markets, including negative impacts on the market price of Cliffs common shares and shares of AK Steel common stock;

 

   

the manner in which customers, vendors, business partners and other third parties perceive Cliffs and AK Steel may be negatively impacted, which in turn could affect Cliffs’ and AK Steel’s ability to compete for new business or obtain renewals in the marketplace more broadly;

 

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Cliffs and AK Steel may experience negative reactions from employees, which may adversely affect, among other things, productivity and occupational safety; and

 

   

Cliffs and AK Steel will have expended significant time and resources that could otherwise have been spent on Cliffs’ and AK Steel’s existing businesses and the pursuit of other opportunities that could have been beneficial to each company, and Cliffs’ and AK Steel’s ongoing business and financial results may be adversely affected.

In addition to the above risks, if the Merger Agreement is terminated and either Cliffs’ or AK Steel’s board seeks an alternative transaction, Cliffs shareholders or AK Steel stockholders cannot be certain that Cliffs or AK Steel will be able to find a party willing to engage in a transaction on more attractive terms than the Merger. If the Merger Agreement is terminated under specified circumstances, either Cliffs or AK Steel may be required to pay the other party a termination fee. See the section entitled “The Merger Agreement—Termination” beginning on page [    ] for a description of these circumstances.

Required regulatory approvals may impose conditions that are not presently anticipated or cannot be met. In addition, an adverse outcome of any antitrust or similar review undertaken by a governmental authority could prevent the Merger from being completed or have an adverse effect on Cliffs following the Merger.

Completion of the Merger is conditioned upon the approval by the NYSE of the listing of the Cliffs common shares to be issued in the Merger (subject to official notice of issuance) and the expiration or termination of the waiting period (or any extension thereof) applicable to the Merger under the HSR Act and required clearance by the Canadian Competition Bureau and Mexican Competition Commission. In deciding whether to grant the required antitrust clearances, the relevant governmental entities will consider the anticipated effect of the Merger within their relevant jurisdiction, including, among other things, the impact on the parties’ respective customers and suppliers. The terms and conditions of any approval that is granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business or may materially delay the completion of the Merger.

The waiting period applicable to the Merger under the HSR Act will expire at 11:59 p.m. on February 5, 2020 unless there is a Request for Additional Information and Documentary Material issued by either the FTC or DOJ, the parties voluntarily withdraw the HSR filing and re-file such HSR filing, or the parties agree with the FTC or DOJ not to close before a certain date or certain time period during a regulatory investigation. The FTC and DOJ may also grant early termination of the waiting period prior to 11:59 P.M. on February 5, 2020.

Under the Merger Agreement, the parties agreed to use their respective reasonable best efforts to obtain these authorizations and consents and to take any and all steps necessary to avoid or eliminate impediments under any antitrust laws that may be asserted by any governmental authority so as to enable the completion of the Merger as promptly as practicable. However, Cliffs’ obligations to take such actions are subject to limitations, including that Cliffs will not be required to commit to agree to effect any sale, divestiture, lease, license, transfer or otherwise dispose of or hold separate any of the assets or business of Cliffs or AK Steel. Further, Cliffs is not required to agree to certain other restrictions or actions if such actions in the aggregate would or would reasonably be expected to have a materially adverse effect on the combined company, taken as a whole after giving effect to the Merger, or have an economic effect on Cliffs or AK Steel in an amount that would be material when compared to the benefits anticipated to be derived by Cliffs from the Merger.

Even after the expiration of the waiting period under the HSR Act, the FTC or the DOJ could take action under antitrust laws to prevent or unwind the Merger, require the divestiture of assets, impose conditions on the completion of the Merger or require changes to the terms of the Merger or Merger Agreement.

If the Canadian Competition Bureau or the Mexican Competition Commission determine that the Merger is likely to substantially prevent or lessen competition in Canada or Mexico, respectively, they could take action under applicable antitrust laws to require the divestiture of assets, impose conditions on the completion of the Merger or require changes to the terms of the Merger or Merger Agreement.

 

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Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding completion of the Merger or of imposing additional costs or limitations on Cliffs following completion of the Merger, any of which might have an adverse effect on Cliffs following completion of the Merger. Additionally, state attorneys general could seek to block or challenge the Merger as they deem necessary or desirable in the public interest at any time, including after completion of the Merger. In addition, in some circumstances, a third party could initiate a private action under antitrust laws challenging or seeking to enjoin the Merger, before or after it is completed.

Cliffs and AK Steel will be subject to business uncertainties while the Merger is pending, which could adversely affect their respective businesses.

Uncertainty about the effect of the Merger on employees, suppliers and customers may have an adverse effect on Cliffs and AK Steel. These uncertainties may impair Cliffs’ and AK Steel’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter, and could cause suppliers, customers and others that deal with Cliffs and AK Steel to seek to change their existing business relationships with Cliffs and AK Steel, respectively. For example, Cliffs’ customers may not want to purchase their iron ore from a company that is also a competitor. Employee retention at AK Steel may also be challenging during the pendency of the Merger, as employees may experience uncertainty about their roles with Cliffs following the Merger. In addition, the Merger Agreement restricts Cliffs and AK Steel from entering into certain corporate transactions and taking other specified actions without the consent of the other party, and generally requires AK Steel to continue its operations in the ordinary course, until completion of the Merger. These restrictions may prevent Cliffs and AK Steel from pursuing attractive business opportunities that may arise prior to the completion of the Merger. Please see the section entitled “The Merger Agreement—Interim Operations of AK Steel and Cliffs Pending the Merger” beginning on page [    ], for a description of the restrictive covenants to which Cliffs and AK Steel are subject.

Directors and executive officers of AK Steel may have interests in the Merger that are different from, or in addition to, the interests of AK Steel stockholders.

Directors and executive officers of AK Steel may have interests in the Merger that are different from, or in addition to, the interests of AK Steel stockholders generally. These interests include, among others, the treatment of outstanding equity and equity-based awards pursuant to the Merger Agreement, certain enhanced nonqualified retirement benefits to which the executive officers may become entitled on completion of the Merger, and potential severance and other benefits upon a qualifying termination in connection with the Merger. These interests are described in more detail in the section entitled “The Merger—Interests of AK Steel Directors and Executive Officers in the Merger” beginning on page [    ]. In addition, Cliffs has agreed to appoint three current members of the AK Steel board to the Cliffs board upon the closing of the Merger, and certain current and former directors and officers of AK Steel will be entitled to ongoing indemnification and insurance coverage as described in the section entitled “The Merger—Indemnification and Insurance” beginning on page [    ].

The Merger may be less accretive than expected, or may be dilutive, to Cliffs’ earnings per share, which may negatively affect the market price of Cliffs common shares.

The Merger may be less accretive than expected, or may be dilutive, to Cliffs’ earnings per share. Estimates of Cliffs’ earnings per share in the future are based on preliminary estimates that may materially change. In addition, future events and conditions could decrease or delay any accretion, result in dilution or cause greater dilution than is currently expected, including:

 

   

adverse changes in market conditions;

 

   

commodity prices for iron ore and steel;

 

   

production levels;

 

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operating results;

 

   

competitive conditions;

 

   

laws and regulations affecting the iron ore and steel businesses;

 

   

capital expenditure obligations;

 

   

higher than expected integration costs;

 

   

lower than expected synergies; and

 

   

general economic conditions.

Any dilution of, or decrease or delay of any accretion to, Cliffs’ earnings per share could cause the price of Cliffs common shares to decline.

Cliffs and AK Steel will incur significant transaction and Merger-related costs in connection with the Merger, which may be in excess of those anticipated by Cliffs or AK Steel.

Each of Cliffs and AK Steel has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement, including the costs and expenses of filing, printing and mailing this joint proxy statement/prospectus and all filing and other fees paid to the SEC and other regulatory agencies in connection with the Merger.

Cliffs and AK Steel expect to continue to incur a number of non-recurring costs associated with completing the Merger, combining the operations of the two companies and achieving anticipated synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the Merger and include, among others, fees paid to financial, legal and accounting advisors, employee retention costs, severance and benefit costs and filing fees.

Cliffs and AK Steel will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Cliffs and AK Steel will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Merger and the integration of the two companies’ businesses. Although Cliffs and AK Steel each expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow Cliffs and AK Steel to offset integration-related costs over time, this net benefit may not be achieved in the near term or at all. See the section entitled “Risk Factors—The integration of AK Steel into Cliffs may not be as successful as anticipated” beginning on page [    ].

The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of Cliffs following the completion of the Merger.

Many of these costs will be borne by Cliffs or AK Steel even if the Merger is not completed.

Cliffs, AK Steel and their respective Directors may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies and their directors when companies enter into agreements for transactions similar to those contemplated by the Merger Agreement, and such lawsuits may be brought against Cliffs, AK Steel or their respective directors in connection with the Merger Agreement. Even if the lawsuits are without merit, these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Cliffs’ and AK Steel’s respective liquidity and financial condition. Additionally, if a

 

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plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may adversely affect Cliffs’ and AK Steel’s respective business, financial position and results of operations. Currently, neither Cliffs nor AK Steel is aware of any securities class action lawsuits or derivative lawsuits having been filed in connection with the Merger.

The opinions of Cliffs’ and AK Steel’s respective financial advisors will not reflect changes in circumstances between the signing of the Merger Agreement and the completion of the Merger.

The Cliffs board and the AK Steel board received opinions from Moelis and Goldman Sachs, respectively, in connection with the signing of the Merger Agreement regarding the fairness (from a financial point of view) of the exchange ratio to Cliffs and the AK Steel stockholders (other than Cliffs and its affiliates), respectively. Cliffs and AK Steel have not requested or obtained updated opinions from their respective financial advisors as of the date of this joint proxy statement/prospectus, nor do they anticipate requesting or obtaining updated opinions in the future, including as of the closing date of the Merger. Changes in the operations and prospects of Cliffs or AK Steel, general market and economic conditions and other factors that may be beyond the control of Cliffs or AK Steel, and on which Cliffs’ and AK Steel’s financial advisors’ opinions were based, may significantly alter the value of Cliffs or AK Steel or the prices of the Cliffs common shares or of the shares of AK Steel common stock by the time the Merger is completed. The opinions do not speak as of the time the Merger will be completed or as of any date other than the dates referenced in such opinions. Because Cliffs and AK Steel do not currently anticipate asking their respective financial advisors to update their opinions, the opinions will not address the fairness of the exchange ratio, from a financial point of view, at the time of the Cliffs special meeting or AK Steel special meeting, respectively, or at the time the Merger is completed. The Cliffs board’s recommendation that Cliffs shareholders vote “FOR” approval of the Cliffs merger proposal and the AK Steel board’s recommendation that AK Steel stockholders vote “FOR” adoption of the Merger Agreement, however, are each made as of the date of this joint proxy statement/prospectus. For a description of the opinions that Cliffs and AK Steel received from their respective financial advisors, please see the sections entitled “The Merger—Opinion of Moelis, Cliffs’ Financial Advisor” and “The Merger—Opinion of Goldman Sachs, AK Steel’s Financial Advisor” beginning on pages [    ] and [    ], respectively.

Completion of the Merger may trigger change in control or other provisions in certain agreements to which AK Steel is a party.

The completion of the Merger may trigger change in control or other provisions in certain agreements to which AK Steel is a party. If Cliffs and AK Steel are unable to obtain the consent of the counterparties to the Merger or negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, which may include terminating the agreements or seeking monetary damages. Even if Cliffs and AK Steel are able to obtain consents or negotiate waivers, the counterparties may require consideration for granting such consents or waivers or seek to renegotiate the agreements on terms less favorable to AK Steel.

The combined company’s debt may limit its financial flexibility.

As of September 30, 2019, Cliffs had approximately $2.1 billion of outstanding indebtedness and AK Steel had approximately $2.0 billion of outstanding indebtedness. Cliffs continues to review the treatment of its and AK Steel’s existing indebtedness and Cliffs and/or AK Steel may seek to repay, refinance, repurchase, redeem, exchange or otherwise terminate Cliffs’ or AK Steel’s existing indebtedness prior to, in connection with or following the completion of the Merger. If Cliffs does seek to refinance its or AK Steel’s existing indebtedness, there can be no guarantee that Cliffs would be able to execute the refinancing on favorable terms or at all. In addition, in connection with entering into the Merger Agreement, Cliffs obtained commitments to provide debt financing in an amount sufficient to repay AK Steel’s outstanding indebtedness under its revolving credit facility as well as AK Steel’s outstanding senior secured notes. Although the receipt of such financing is not a condition to the closing of the Merger, the unavailability of such financing could adversely impact the financial condition and liquidity of the combined company.

 

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Assuming Cliffs and AK Steel do not repay, repurchase, redeem, exchange or otherwise terminate any of Cliffs’ or AK Steel’s existing indebtedness, immediately following the completion of the Merger, Cliffs is expected to have outstanding indebtedness of approximately $4.2 billion, based on Cliffs’ and AK Steel’s outstanding indebtedness as of September 30, 2019 and the financing activities expected to be completed in conjunction with the Merger.

Any increase in Cliffs’ indebtedness could have adverse effects on its financial condition and results of operations, including:

 

   

increasing Cliffs’ vulnerability to changing economic, regulatory and industry conditions;

 

   

limiting Cliffs’ ability to compete and Cliffs’ flexibility in planning for, or reacting to, changes in its business and the industry;

 

   

limiting Cliffs’ ability to pay dividends to its shareholders;

 

   

limiting Cliffs’ ability to borrow additional funds; and

 

   

requiring Cliffs to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing funds available for working capital, capital expenditures, acquisitions, share repurchases, dividends and other purposes.

In addition, in connection with executing Cliffs’ business strategies following the Merger, Cliffs expects to continue to evaluate the possibility of acquiring additional assets and making further strategic investments, and Cliffs may elect to finance these endeavors by incurring additional indebtedness.

Cliffs’ ability to arrange any additional financing for the purposes described above or otherwise will depend on, among other factors, Cliffs’ financial position and performance, as well as prevailing market conditions and other factors beyond Cliffs’ control. Cliffs cannot assure you that it will be able to obtain such financing on acceptable terms or at all.

The unaudited pro forma condensed combined financial information and unaudited forecasted financial information included in this joint proxy statement/prospectus is presented for illustrative purposes only and does not represent the actual financial position or results of operations of the combined company following the completion of the Merger. Future results of the combined company may differ, possibly materially, from the unaudited pro forma condensed combined financial information and unaudited forecasted financial information presented in this joint proxy statement/prospectus.

The unaudited pro forma condensed combined financial statements and unaudited forecasted financial information included in this joint proxy statement/prospectus is presented for illustrative purposes only, contains a variety of adjustments, assumptions and preliminary estimates and does not represent the actual financial position or results of operations of Cliffs and AK Steel prior to the Merger or that of the combined company following the Merger for several reasons. Specifically, Cliffs has not completed the detailed valuation analyses to arrive at the final estimates of the fair values of the assets to be acquired and liabilities to be assumed and the related allocation of purchase price and the unaudited pro forma condensed combined financial statements do not reflect the effects of transaction-related costs and integration costs. See the sections entitled “Unaudited Pro Forma Condensed Combined Financial Statements” and “Notes to Unaudited Pro Forma Condensed Combined Financial Statements” beginning on pages [    ] and [    ], respectively. In addition, the Merger and post-Merger integration process may give rise to unexpected liabilities and costs, including costs associated with transaction-related litigation or other claims. Unexpected delays in completing the Merger or in connection with the post-Merger integration process may significantly increase the related costs and expenses incurred by Cliffs. The actual financial positions and results of operations of Cliffs and AK Steel prior to the Merger and that of the combined company following the Merger may be different, possibly materially, from the unaudited pro forma condensed combined financial statements or unaudited forecasted financial information included in this joint

 

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proxy statement/prospectus. In addition, the assumptions used in preparing the unaudited pro forma condensed combined financial statements and unaudited forecasted financial information included in this joint proxy statement/prospectus may not prove to be accurate and may be affected by other factors. Any significant changes in the market price of Cliffs common shares may cause a significant change in the purchase price used for Cliffs’ accounting purposes and the unaudited pro forma condensed combined financial statements included in this joint proxy statement/prospectus.

The integration of AK Steel into Cliffs may not be as successful as anticipated.

The Merger involves numerous operational, strategic, financial, accounting, legal, tax and other functions that must be integrated. Difficulties in integrating AK Steel into Cliffs may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated expense-related efficiencies. Cliffs’ and AK Steel’s existing businesses could also be negatively impacted by the Merger. Potential difficulties that may be encountered in the integration process include, among other factors:

 

   

the inability to successfully integrate the businesses of AK Steel into Cliffs in a manner that permits Cliffs to achieve the anticipated benefits and cost savings from the Merger;

 

   

challenges associated with managing the larger, more complex, integrated business;

 

   

not realizing anticipated operating synergies or incurring unexpected costs to realize such synergies;

 

   

integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products;

 

   

potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Merger;

 

   

uncertainties related to the entry into a new line of business;

 

   

loss of key employees;

 

   

integrating relationships with customers, vendors and business partners;

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Merger and integrating AK Steel’s operations into Cliffs; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.

Cliffs’ results may suffer if it does not effectively manage its expanded operations following the Merger.

Following completion of the Merger, Cliffs’ success will depend, in part, on its ability to manage its expansion, which poses numerous risks and uncertainties, including the need to integrate the operations and business of AK Steel into its existing business in an efficient and timely manner, to combine systems and management controls.

Even if Cliffs and AK Steel complete the Merger, Cliffs may fail to realize all of the anticipated benefits of the proposed Merger.

The success of the proposed Merger will depend, in part, on Cliffs’ ability to realize the anticipated benefits and cost savings from combining Cliffs’ and AK Steel’s businesses. The anticipated benefits and cost savings of the proposed Merger may not be realized fully or at all, may take longer to realize than expected, may require more non-recurring costs and expenditures to realize than expected or could have other adverse effects that Cliffs does not currently foresee. Some of the assumptions that Cliffs has made, such as with respect to anticipated operating synergies or the costs associated with realizing such synergies; significant long-term cash flow generation; and the benefits of being a vertically integrated value-added iron ore and steel producing enterprise, may not be realized. The integration process may, for each of Cliffs and AK Steel, result in the loss of key

 

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employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the Merger that were not discovered in the course of performing due diligence.

Uncertainties associated with the Merger may cause a loss of management personnel and other employees, which could adversely affect the future business and operations of the combined company.

Cliffs and AK Steel are dependent on the experience and industry knowledge of their officers and other employees to execute their business plans. Each company’s success until the Merger and the combined company’s success after the Merger will depend in part upon the ability of Cliffs and AK Steel to retain management personnel and other employees. Current and prospective employees of Cliffs and AK Steel may experience uncertainty about their roles within the combined company following the Merger, which may have an adverse effect on the ability of each of Cliffs and AK Steel to attract or retain management and other personnel. Accordingly, no assurance can be given that the combined company will be able to attract or retain management personnel and other employees of Cliffs and AK Steel to the same extent that Cliffs and AK Steel have previously been able to attract or retain their own employees.

The market price of Cliffs common shares may decline in the future as a result of the sale of Cliffs common shares held by former AK Steel stockholders or current Cliffs shareholders.

Cliffs expects to issue approximately 133.1 million Cliffs common shares to AK Steel stockholders in the Merger (including shares underlying AK Steel equity awards expected to be outstanding at the effective time of the Merger, which will be converted into awards with respect to Cliffs common shares). Following their receipt of Cliffs common shares as merger consideration, former AK Steel stockholders may seek to sell the Cliffs common shares delivered to them. Other Cliffs shareholders may also seek to sell Cliffs common shares held by them following, or in anticipation of, completion of the Merger. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of Cliffs common shares, may affect the market for, and the market price of, Cliffs common shares in an adverse manner.

The combined company may record tangible and intangible assets, including goodwill, that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.

The Merger will be accounted for as an acquisition by Cliffs in accordance with accounting principles generally accepted in the United States. Under the acquisition method of accounting, the assets and liabilities of AK Steel and its subsidiaries will be recorded, as of completion of the Merger, at their respective fair values and added to those of Cliffs. The reported financial condition and results of operations of Cliffs for periods after completion of the Merger will reflect AK Steel balances and results after completion of the Merger but will not be restated retroactively to reflect the historical financial position or results of operations of AK Steel and its subsidiaries for periods prior to the Merger. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page [    ].

Under the acquisition method of accounting, the total purchase price will be allocated to AK Steel’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Merger. The excess, if any, of the purchase price over those fair values will be recorded as goodwill. To the extent the value of tangible or intangible assets, including goodwill, becomes impaired, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.

 

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The ability to use AK Steel’s and Cliffs’ respective pre-Merger net operating loss carryforwards and certain other tax attributes to offset future taxable income may be subject to certain limitations.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising before the “ownership change” are subject to limitations after the “ownership change.” An “ownership change” under Section 382 of the Code generally occurs if one or more shareholders or groups of shareholders who own at least 5% of the corporation’s equity increase their ownership in the aggregate by more than 50 percentage points over their lowest ownership percentage within a rolling period that begins on the later of three years prior to the testing date and the date of the last “ownership change.” If an “ownership change” were to occur, Section 382 of the Code would impose an annual limit on the amount of pre-ownership change net operating loss carryforwards and other tax attributes the corporation could use to reduce its taxable income, potentially increasing and accelerating the corporation’s liability for income taxes, and also potentially causing tax attributes to expire unused. The amount of the annual limitation is determined based on a corporation’s value immediately prior to the ownership change.

As of December 31, 2018, AK Steel had U.S. federal net operating loss carryforwards of approximately $2.2 billion and approximately $89.2 million in deferred tax assets for state net operating loss carryforwards and tax credit carryforwards. The Merger likely will result in an “ownership change” with respect to AK Steel. Accordingly, all or a portion of AK Steel’s U.S. federal net operating loss carryforwards and certain other tax attributes likely would be subject to limitations (or disallowance) on their use after the Merger. Similar rules with respect to the state net operating loss carryforwards may apply under state tax laws.

As of December 31, 2018, Cliffs had U.S. federal net operating loss carryforwards of approximately $2.1 billion and state net operating loss carryforwards of approximately $1.5 billion. Cliffs’ ability to utilize the $2.1 billion U.S. federal net operating loss carryforwards may be limited if Cliffs experiences an “ownership change” under Section 382 of the Code. Similar rules with respect to the $1.5 billion state net operating loss carryforwards may apply under state tax laws. The issuance of Cliffs common shares to AK Steel stockholders in the Merger or in connection with other issuances or sales of Cliffs common shares (including certain transactions involving Cliffs common shares that are outside of Cliffs’ control) could cause an “ownership change.”

Subsequent “ownership changes” may further affect the limitation in future years, and similar rules may also apply under state and foreign tax laws. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of AK Steel’s, Cliffs’ or the combined company’s net operating loss carryforwards and other tax attributes, which, in addition to increasing the combined company’s U.S. federal income tax liability, could adversely affect the combined company’s share price, financial condition, results of operations and cash flows.

Risks Relating to Cliffs’ Business

You should read and consider risk factors specific to Cliffs’ businesses that may also affect the combined company after the completion of the Merger. These risks are described in Part I, Item 1A of Cliffs’ Annual Report on Form 10-K for the year ended December 31, 2018, and in other documents that are incorporated by reference herein. See the section entitled “Where You Can Find More Information” beginning on page [    ] for the location of information incorporated by reference in this joint proxy statement/prospectus.

Risks Relating to AK Steel’s Business

You should read and consider risk factors specific to AK Steel’s businesses that may also affect the combined company after the completion of the Merger. These risks are described in Part I, Item 1A of AK Steel’s Annual Report on Form 10-K for the year ended December 31, 2018, and in other documents that are incorporated by reference herein. See the section entitled “Where You Can Find More Information” beginning on page [    ] for the location of information incorporated by reference in this joint proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, and the documents filed with the SEC by AK Steel and Cliffs that are incorporated by reference herein, as well as oral statements made or to be made by AK Steel and Cliffs, include certain “forward-looking statements” within the meaning of, and subject to the safe harbor created by, Section 27A of the Securities Act and Section 21E of the Exchange Act, which are referred to as the safe harbor provisions. Words such as “anticipate,” “assume,” “believe,” “build,” “continue,” “create,” “design,” “estimate,” “expect,” “focus,” “forecast,” “future,” “goal,” “guidance,” “imply,” “intend,” “look,” “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “strategy,” “target,” “work,” “could,” “may,” “should,” “would,” “will” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements with respect to the businesses, strategies and plans of AK Steel and Cliffs, their expectations relating to the Merger and their future financial condition and performance. Cliffs and AK Steel caution investors that any forward-looking statements are subject to risks and uncertainties that may cause actual results and future trends to differ materially from those matters expressed in or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on forward-looking statements. Among the risks and uncertainties that could cause actual results to differ from those described in forward-looking statements are the following:

 

   

the risk that the Merger Agreement may be terminated in accordance with its terms and that the Merger may not be completed;

 

   

the possibility that Cliffs shareholders may not approve the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs common shares in connection with the Merger;

 

   

the possibility that AK Steel stockholders may not adopt the Merger Agreement;

 

   

the risk that the parties may not be able to satisfy any or all of the conditions to the completion of the Merger in a timely manner or at all;

 

   

the risk that governmental agencies may require Cliffs to agree to certain restrictions on the combined company’s business in order to obtain the required regulatory approvals for the Merger, which may negatively impact the combined company’s results of operations;

 

   

the risk that the Merger may be less accretive than expected, or may be dilutive, to Cliffs’ earnings per share, which may negatively affect the market price of Cliffs common shares;

 

   

the possibility that Cliffs and AK Steel will incur significant transaction and other costs in connection with the Merger, which may be in excess of those anticipated by Cliffs or AK Steel;

 

   

the risk that the financing transactions to be undertaken in connection with the Merger have a negative impact on the combined company’s credit profile or financial condition;

 

   

the risk that Cliffs may fail to realize the benefits expected from the Merger;

 

   

the risk that the combined company may be unable to achieve anticipated synergies or that it may take longer than expected to achieve those synergies;

 

   

the risk that any announcements relating to, or the completion of, the Merger could have adverse effects on the market price of Cliffs common shares;

 

   

the risk related to any unforeseen liability and future capital expenditure of AK Steel or Cliffs;

 

   

the risk that litigation relating to the Merger may be brought against Cliffs, AK Steel or their respective directors;

 

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the risk that the Merger and its announcement or completion could have an adverse effect on the ability of Cliffs and AK Steel to retain customers, retain and hire key personnel and/or maintain relationships with their suppliers and business partners;

 

   

the risk of any changes in general economic, market or business conditions, or changes in the economic or financial condition of Cliffs and AK Steel; and

 

   

the risks to their operating results and businesses generally.

Such factors are difficult to predict and in many cases may be beyond the control of Cliffs and AK Steel. Cliffs’ and AK Steel’s forward-looking statements are based on assumptions that Cliffs and AK Steel, respectively, believe to be reasonable but that may not prove to be accurate. Consequently, all of the forward-looking statements Cliffs and AK Steel make in this document are qualified by the information contained in or incorporated by reference herein, including the information contained under this heading and the information detailed in Cliffs’ Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and its subsequent Quarterly Reports on Form 10-Q, and in AK Steel’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and AK Steel’s subsequent Quarterly Reports on Form 10-Q. See the section entitled “Where You Can Find More Information” beginning on page [    ].

Cliffs and AK Steel undertake no obligation to update or publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances that occur, or which they become aware of, except as required by applicable law or regulation. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

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INFORMATION ABOUT THE COMPANIES

Cleveland-Cliffs Inc.

200 Public Square

Suite 3300

Cleveland, OH 44114

Phone: 1-800-214-0739

Founded in 1847, Cliffs is the largest and oldest independent iron ore mining company in the United States. Cliffs 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, Cliffs expects to be the sole producer of 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, Cliffs employees endeavor to provide all stakeholders with operating and financial transparency.

AK Steel Holding Corporation

9227 Centre Pointe Drive

West Chester, OH 45069

Phone: 513-425-5000

AK Steel was incorporated in Delaware in 1993. Through its wholly owned subsidiary, AK Steel Corporation, it is a leading producer of flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing, and distributors and converters markets. AK Steel’s downstream businesses also provide customer solutions with carbon and stainless steel tubing products, advanced-engineered solutions, tool design and build, hot- and cold-stamped steel components, and complex assemblies. As the successor to Armco Inc., AK Steel continues a rich history of creating leading-edge steel innovations that began in 1899.

Pepper Merger Sub Inc.

c/o Cleveland-Cliffs Inc.

200 Public Square

Suite 3300

Cleveland, OH 44114

Phone: 1-800-214-0739

Merger Sub is a direct, wholly owned subsidiary of Cliffs. Upon the completion of the Merger, Merger Sub will cease to exist. Merger Sub was incorporated in Delaware on November 26, 2019 for the sole purpose of effecting the Merger and to date has undertaken no activities other than those incident to its formation and the matters contemplated by the Merger Agreement in connection with the Merger.

 

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SPECIAL MEETING OF CLIFFS SHAREHOLDERS

Date, Time and Place

The Cliffs special meeting will be held at [                ] Eastern Time on [                ], 2020, at [                ].

Purpose of the Cliffs Special Meeting

The purpose of the Cliffs special meeting is as follows:

 

   

to consider and vote on the Cliffs merger proposal; and

 

   

if necessary, to consider and vote on the Cliffs adjournment proposal.

Cliffs will transact no other business at the Cliffs special meeting.

Recommendation of the Cliffs Board

The Cliffs board recommends that Cliffs shareholders vote:

 

  1.

FOR” the approval of the Cliffs merger proposal; and

 

  2.

FOR” the approval of the Cliffs adjournment proposal.

See the section entitled “The Merger—Recommendation of the Cliffs Board and Reasons for the Merger” beginning on page [    ].

Record Date; Shareholders Entitled to Vote

Only holders of record of issued and outstanding Cliffs common shares as of the close of business on [                ], 2020, the record date for the Cliffs special meeting, are entitled to notice of, and to vote at, the Cliffs special meeting or any adjournment or postponement of the Cliffs special meeting. As of the close of business on the record date, there were issued and outstanding a total of [                ] Cliffs common shares entitled to vote at the Cliffs special meeting. As of the close of business on January 3, 2020, approximately 1.5% of the issued and outstanding Cliffs common shares were held by Cliffs’ directors, executive officers and their affiliates.

Quorum; Required Votes; Abstentions and Broker Non-Votes

A quorum of Cliffs shareholders is necessary to hold a valid meeting. A quorum will exist at the Cliffs special meeting if shares representing not less than a majority of the voting power of Cliffs are present, in person or represented by proxy, with respect to any matter to be considered at the Cliffs special meeting. All shares represented by proxy are counted as present for purposes of establishing a quorum, including abstentions. Cliffs common shares held in “street name” will be counted as present for the purpose of determining the existence of a quorum at the Cliffs special meeting so long as the beneficial owner of the shares has given their bank, broker or other nominee voting instructions on at least one of the proposals brought before the Cliffs special meeting. The proposals for consideration at the Cliffs special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, no “broker non-votes” can occur at the meeting. Cliffs common shares held in “street name” will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on either of the proposals. Because both of the proposals for consideration at the Cliffs special meeting are considered “non-routine” under the NYSE rules, brokers will not be permitted to vote on any of the matters to be considered at the Cliffs special meeting unless they have received specific instructions from the beneficial owners. As a result, if your Cliffs common shares are held in “street name,” they will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your Cliffs common shares in one of the ways indicated by your bank, broker or other nominee.

 

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If you are a holder of record of Cliffs common shares and you submit a properly executed proxy card, even if you do not vote for some or all of the proposals or vote to “ABSTAIN” in respect of some or all of the proposals, your Cliffs common shares will be counted for purposes of calculating whether a quorum is present at the Cliffs special meeting. Proxies that have been executed but do not reflect a vote on any proposal will be voted in accordance with the recommendation of the Cliffs board on such proposal. If additional votes must be solicited to approve the Cliffs merger proposal, it is expected that the Cliffs special meeting will be adjourned to solicit additional proxies.

Approval of the Cliffs merger proposal requires the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. The failure to submit a proxy card or to vote in person at the Cliffs special meeting or the abstention from voting by Cliffs shareholders, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Cliffs merger proposal, will have the same effect as a vote “AGAINST” the Cliffs merger proposal.

Approval of the Cliffs adjournment proposal requires the affirmative vote of the holders of a majority of the Cliffs common shares present in person or represented by proxy at the Cliffs special meeting, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the Cliffs adjournment proposal, while the failure to submit a proxy card or to vote in person at the Cliffs special meeting, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee on the Cliffs merger proposal and Cliffs adjournment proposal, will have no effect on the Cliffs adjournment proposal.

The matters to be voted on at the Cliffs special meeting are described in the section entitled “Cliffs Proposals” beginning on page [    ].

Methods of Voting

If your Cliffs common shares are registered in your name with Cliffs’ transfer agent, Broadridge Corporate Issuer Solutions, you are a shareholder of record with respect to those shares and you received printed proxy materials directly from us. If your shares are held in an account at a bank, broker or other similar organization, you are the “beneficial owner” of such shares and the printed proxy materials were forwarded to you by that organization. In that circumstance, the organization is considered the shareholder of record for purposes of voting at the Cliffs special meeting. As a beneficial owner, you have the right to instruct the organization how to vote the shares held in your account.

If you are a shareholder of record of Cliffs common shares, you may vote:

 

   

via the Internet by proxy by following the instructions provided until 11:59 p.m. Eastern Time on [                ], 2020;

 

   

by telephone by proxy by calling the toll-free telephone number located on the proxy card or available via the Internet until 11:59 p.m. Eastern Time on [                ], 2020;

 

   

by completing, signing and returning your proxy or voting instruction card and returning it in the provided envelope via mail. If you vote by mail, your proxy card must be received by 11:59 p.m. Eastern Time on [                ], 2020; or

 

   

in person at the Cliffs special meeting. You will be required to present a valid form of government-issued photo identification to be admitted to the Cliffs special meeting and a ballot will be provided to you upon arrival.

If you are a beneficial owner of Cliffs common shares held in “street name,” you may vote:

 

   

via the Internet by following the instructions provided to you by your bank, broker or other nominee;

 

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by telephone by calling the toll-free telephone number located on the voting instruction form or available via the Internet, provided to you by your bank, broker or other nominee;

 

   

by completing, signing and returning the voting instruction form and returning it in the provided envelope via mail provided to you by your bank, broker or other nominee; or

 

   

in person at the Cliffs special meeting but you must first obtain a legal proxy form from the bank, broker or other nominee that holds your Cliffs common shares. Please contact such broker or organization for instructions regarding obtaining a legal proxy. If you do obtain a legal proxy and plan to attend the Cliffs special meeting, you will be required to present a valid form of government-issued photo identification.

Cliffs provides Internet proxy voting to allow you to vote your shares online; however, please be aware you must bear any costs associated with your Internet access, such as usage charges from Internet access providers or telecommunication companies.

Voting in Person

Shareholders of record will need to have a valid form of government-issued photo identification to be admitted to the Cliffs special meeting. If your ownership is through a bank, broker or other nominee, then, in addition to a valid form of government-issued photo identification, you will also need to have proof of your share ownership to be admitted to the Cliffs special meeting. A recent account statement, letter or proxy from your bank, broker or other nominee will suffice. In order to vote at the Cliffs special meeting, if you are not an owner of record, you must first obtain a legal proxy form from the bank, broker or other nominee that holds your shares. Even if you plan to attend the Cliffs special meeting, the Cliffs board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the Cliffs special meeting.

Voting by Proxy

Whether you hold your shares directly as the shareholder of record or beneficially in “street name,” you may direct your vote by proxy without attending the Cliffs special meeting. You can vote by proxy via the Internet, by telephone or by mail by following the instructions provided in the enclosed proxy card if you are a shareholder of record or by following the instructions provided to you by your bank, broker or other nominee.

Questions About Voting

If you have any questions about how to vote or direct a vote in respect of your Cliffs common shares, you may contact Okapi Partners, Cliffs’ proxy solicitor, at:

 

   

Shareholders may call toll-free at +1-877-869-0171.

 

   

Banks and brokers may call collect at +1-212-297-0720.

Revocability of Proxies

If you are a shareholder of record of Cliffs, you may change your vote or revoke your proxy at any time before your shares are voted at the Cliffs special meeting by:

 

   

voting again via the Internet or by telephone;

 

   

sending a proxy card dated later than your last vote;

 

   

delivering a written notice to Cliffs’ Secretary at the address listed for Cliffs in the section entitled “Where You Can Find More Information” beginning on page [    ], stating that you are revoking your proxy; or

 

   

voting in person at the Cliffs special meeting.

 

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If you are a beneficial owner of Cliffs common shares, you must contact your bank, broker or other nominee with whom you have an account to obtain information regarding changing your voting instructions.

Proxy Solicitation Costs

The enclosed proxy card is being solicited on behalf of the Cliffs board. In addition to solicitation by mail, Cliffs’ directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

Cliffs has retained Okapi Partners to assist in the solicitation process. Cliffs will pay Okapi Partners a fee of approximately $50,000 as well as reasonable and documented out-of-pocket expenses. Cliffs also has agreed to indemnify Okapi Partners against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

Cliffs will ask banks, brokers and other custodians, nominees and fiduciaries to forward the proxy solicitation materials to the beneficial owners of Cliffs common shares held of record by such nominee holders. Cliffs will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

Other Information

The matters to be considered at the Cliffs special meeting are of great importance to the shareholders of Cliffs. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and submit your proxy via the Internet or by telephone or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope. If you submit your proxy via the Internet or by telephone, you do not need to return the enclosed proxy card.

Vote of Cliffs Directors and Executive Officers

As of the close of business on January 3, 2020, Cliffs directors and executive officers, and their affiliates, as a group, owned and were entitled to vote 4,106,907 Cliffs common shares, or approximately 1.5% of the total outstanding Cliffs common shares as of January 3, 2020. This is less than the number of Cliffs common shares beneficially owned by such persons as some forms of beneficial ownership do not confer voting rights.

Cliffs currently expects that all of its directors and executive officers will vote their shares “FOR” the Cliffs merger proposal and “FOR” the Cliffs adjournment proposal.

Attending the Cliffs Special Meeting

You are entitled to attend the Cliffs special meeting only if you were a shareholder of record of Cliffs at the close of business on the record date or if you held your Cliffs common shares beneficially in the name of a bank, broker or other nominee as of the record date, or you hold a valid proxy for the Cliffs special meeting from a shareholder who would otherwise be entitled to attend the meeting.

If you were a shareholder of record of Cliffs at the close of business on the record date and wish to attend the Cliffs special meeting, please so indicate on the appropriate proxy card or as prompted by the Internet or telephone voting system. Your name will be verified against the list of shareholders of record prior to your being admitted to the Cliffs special meeting.

If a bank, broker or other nominee is the record owner of your Cliffs common shares, you will need to have proof that you are the beneficial owner as of the record date to be admitted to the Cliffs special meeting. A recent statement or letter from your bank, broker or other nominee confirming your ownership as of the record date, or presentation of a valid proxy from a bank, broker or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

 

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You should be prepared to present government-issued photo identification for admittance to the Cliffs special meeting. If you do not provide government-issued photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the Cliffs special meeting.

Results of the Cliffs Special Meeting

The preliminary voting results are expected to be announced at the Cliffs special meeting. In addition, within four business days following the Cliffs special meeting, Cliffs intends to file the final voting results with the SEC on a Current Report on Form 8-K. If the final voting results have not been certified within that four business day period, Cliffs will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four business days of the date that the final results are certified.

CLIFFS SHAREHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE CLIFFS MERGER PROPOSAL AND THE CLIFFS ADJOURNMENT PROPOSAL.

 

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CLIFFS PROPOSALS

Cliffs Merger Proposal

It is a condition to completion of the Merger that Cliffs shareholders approve the Merger Agreement and the transactions contemplated thereby, including the issuance of Cliffs common shares in connection with the Merger. In the Merger, each AK Steel stockholder will receive, for each share of AK Steel common stock that is issued and outstanding as of immediately prior to the effective time of the Merger, 0.400 Cliffs common shares (together with cash in lieu of any fractional Cliffs common shares and any dividends or distributions on the Cliffs common shares with a record date at or after the effective time of the Merger). See the section entitled “The Merger Agreement—Merger Consideration” beginning on page [    ] for more information.

Approval of the Cliffs merger proposal requires the affirmative vote of the holders of Cliffs common shares entitling them to exercise a majority of the voting power of Cliffs on the proposal. The failure to submit a proxy card or to vote in person at the Cliffs special meeting or the abstention from voting by Cliffs shareholders, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to the Cliffs merger proposal, will have the same effect as a vote “AGAINST” the Cliffs merger proposal.

The Cliffs board recommends you vote “FOR” the Cliffs merger proposal.

Cliffs Adjournment Proposal

Cliffs shareholders are also being asked to approve a proposal to adjourn the Cliffs special meeting, if necessary, to solicit additional proxies in favor of the Cliffs merger proposal in the event there are not sufficient votes at the time of the Cliffs special meeting to approve the Cliffs merger proposal. If the Cliffs special meeting is adjourned for the purpose of soliciting additional proxies, shareholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise at the adjourned meeting.

Approval of the Cliffs adjournment proposal requires the affirmative vote of the holders of a majority of the Cliffs common shares present in person or represented by proxy at the Cliffs special meeting, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the Cliffs adjournment proposal, while the failure to submit a proxy card or to vote in person at the Cliffs special meeting, or the failure of any Cliffs shareholder who holds shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee on the Cliffs merger proposal and the Cliffs adjournment proposal, will have no effect on the Cliffs adjournment proposal.

The Cliffs board recommends you vote “FOR” the Cliffs adjournment proposal.

 

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SPECIAL MEETING OF AK STEEL STOCKHOLDERS

Date, Time and Place

The AK Steel special meeting will be held at [                ] Eastern Time on [                ], 2020, at [                ].

Purpose of the AK Steel Special Meeting

The purpose of the AK Steel special meeting is as follows:

 

   

to consider and vote on the AK Steel merger proposal;

 

   

to consider and vote, on an advisory, non-binding basis, on the AK Steel compensation proposal; and

 

   

if necessary, to consider and vote on the AK Steel adjournment proposal.

AK Steel will transact no other business at the AK Steel special meeting.

Recommendation of the AK Steel Board

The AK Steel board recommends that AK Steel stockholders vote:

 

  1.

FOR” the approval of the AK Steel merger proposal;

 

  2.

FOR” the approval of the AK Steel compensation proposal; and

 

  3.

FOR” the approval of the AK Steel adjournment proposal.

See the section entitled “The Merger—Recommendation of the AK Steel Board and Reasons for the Merger” beginning on page [    ].

Record Date; Stockholders Entitled to Vote

Only holders of record of shares of AK Steel common stock issued and outstanding as of the close of business on [                ], 2020, the record date for the AK Steel special meeting, are entitled to notice of, and to vote at, the AK Steel special meeting or any adjournment or postponement of the AK Steel special meeting. As of the close of business on the record date, there were issued and outstanding a total of [                ] shares of AK Steel common stock. As of the close of business on January 3, 2020, less than 1.0% of the issued and outstanding shares of AK Steel common stock were held by AK Steel’s directors, executive officers and their affiliates.

Quorum; Broker Non-Votes

A quorum of AK Steel stockholders is necessary to hold a valid meeting. A quorum will exist at the AK Steel special meeting if holders of record of shares of AK Steel common stock representing not less than a majority of the issued and outstanding shares of AK Steel common stock entitled to vote at the meeting are present, in person or represented by proxy. All shares of AK Steel common stock represented by proxy will be counted as present for purposes of establishing a quorum, including abstentions.

If you are a holder of record of shares of AK Steel common stock and you submit a properly executed proxy card for the AK Steel special meeting, your shares of AK Steel common stock will be counted for purposes of calculating whether a quorum is present at the meeting, even if you do not vote for some or all of the proposals or vote to “ABSTAIN” in respect of some or all of the proposals.

AK Steel stockholders who hold their shares in “street name” will be counted as present for the purpose of determining the existence of a quorum at the AK Steel special meeting so long as the stockholder has given their bank, broker or other nominee voting instructions on at least one of the proposals brought before the AK Steel

 

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special meeting. The proposals for consideration at the AK Steel special meeting are considered “non-routine” matters under NYSE Rule 452, and, therefore, brokers are not permitted to vote on any of the matters to be considered at the AK Steel special meeting unless they have received specific instructions from the beneficial owners with respect to such matter. As a result, no “broker non-votes” can occur at the meeting and shares of AK Steel common stock will not be counted as present for the purpose of determining the existence of a quorum if no instructions have been provided on how to vote on any of the proposals.

If additional votes must be solicited to approve the AK Steel merger proposal, it is expected that the AK Steel special meeting will be adjourned to allow sufficient time to solicit additional proxies.

Required Votes; Abstentions

Approval of the AK Steel merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of AK Steel common stock entitled to vote on the proposal. The failure to submit a proxy card or to vote in person at the AK Steel special meeting or voting to abstain on the AK Steel merger proposal, will have the same effect as a vote “AGAINST” the AK Steel merger proposal. The failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee, will also have the same effect as a vote “AGAINST” the AK Steel merger proposal.

Approval of the AK Steel compensation proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the AK Steel compensation proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds their shares in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel compensation proposal, assuming a quorum is present at the AK Steel special meeting.

Approval of the AK Steel adjournment proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the AK Steel adjournment proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds common stock in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel adjournment proposal.

Executed proxies that do not include a vote on any proposal will be voted in accordance with the recommendation of the AK Steel board for such proposal. All of the proposals for consideration at the AK Steel special meeting are considered “non-routine” matters under NYSE Rule 452. As a result, if your shares of AK Steel common stock are held in “street name” they will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares of AK Steel common stock in one of the ways indicated by your bank, broker or other nominee.

The matters to be voted on at the AK Steel special meeting are described in the section entitled “AK Steel Proposals” beginning on page [    ].

Methods of Voting

If your shares of AK Steel common stock are registered in your name with AK Steel’s transfer agent, Computershare, you are a stockholder of record with respect to those shares of common stock and you received printed proxy materials directly from us. If your shares of AK Steel common stock are held in an account at a bank, broker or other similar organization, you are the “beneficial owner” of such shares and the printed proxy

 

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materials were forwarded to you by that organization and your shares are considered to be held in “street name.” If your shares are held in “street name,” your bank, broker or other nominee is considered the stockholder of record for purposes of voting at the AK Steel special meeting. As a beneficial owner, you have the right to instruct the organization how to vote the shares of AK Steel common stock held in your account.

If you are a stockholder of record of AK Steel common stock as of the close of business on the record date, you may vote:

 

   

via the Internet by following the instructions provided on your proxy card until 11:59 p.m. Eastern Time on [                ], 2020;

 

   

by telephone by calling the toll-free telephone number located on the proxy card until 11:59 p.m. Eastern Time on [                ], 2020;

 

   

by completing, signing and returning the enclosed proxy card and returning it in the provided envelope via mail. If you vote by mail, your proxy card must be received by AK Steel’s Corporate Secretary by the close of business on [                ], 2020; or

 

   

in person at the AK Steel special meeting. You will be required to present a valid form of government-issued photo identification to be admitted to the AK Steel special meeting and a ballot will be provided to you upon arrival.

AK Steel provides Internet proxy voting to allow you to vote your shares online; however, please be aware you must bear any costs associated with your Internet access, such as usage charges from Internet access providers or telecommunication companies.

If you are a beneficial owner of AK Steel common stock held in “street name,” you may instruct your bank, broker or other nominee to vote your shares by following the instructions that the bank, broker or other nominee provides to you. Most brokers offer stockholders the ability to vote via the Internet, by telephone or by completing, signing and returning a voting instruction form. If your shares are held in “street name,” you may vote in person at the AK Steel special meeting but you must first obtain a legal proxy form from the bank, broker or other nominee that holds your AK Steel common stock. Please contact your broker or organization for instructions regarding obtaining a legal proxy. If you do obtain a legal proxy and plan to attend the AK Steel special meeting, you will be required to present a valid form of government-issued photo identification.

Voting in Person

AK Steel stockholders of record will need to have a valid form of government-issued photo identification to be admitted to and receive a ballot to vote at the AK Steel special meeting.

If your ownership is through a bank, broker or other nominee, then, in addition to a valid form of government-issued photo identification, you will also need to have proof of your ownership of AK Steel common stock to be admitted to the AK Steel special meeting. A recent account statement, letter or proxy from your bank, broker or other nominee will suffice. In order to vote at the AK Steel special meeting, if you are not an owner of record, you must also first obtain a legal proxy form from the bank, broker or other nominee that holds your AK Steel common stock. Even if you plan to attend the AK Steel special meeting, the AK Steel board recommends that you vote your shares in advance as described below so that your vote will be counted if you later decide not to attend the AK Steel special meeting.

Voting by Proxy

If you hold your AK Steel common stock directly as the stockholder of record, you may direct your vote by proxy without attending the AK Steel special meeting. You can vote by proxy via the Internet, by telephone or by mail by following the instructions provided in the enclosed proxy card. If you hold your AK Steel shares beneficially in “street name,” you can instruct your bank, broker or other nominee how to vote by proxy by following the instructions provided to you by the bank, broker or other nominee.

 

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Voting by Participants in AK Steel Thrift Plans

If you hold shares of AK Steel common stock in an AK Steel thrift plan, you must timely provide the applicable plan trustee with voting instructions with respect to the shares you hold in such AK Steel thrift plan. If you do not provide the AK Steel thrift plan trustee with voting instructions, neither the AK Steel thrift plan trustee nor the applicable fiduciary committee for such AK Steel thrift plan will be able to vote the shares of AK Steel common stock held for your benefit through such AK Steel thrift plan at the AK Steel special meeting.

Questions About Voting

If you have any questions about how to vote your shares of AK Steel common stock, you may contact AK Steel’s proxy solicitor, Georgeson, toll-free at 1-866-413-5899.

Revocability of Proxies

If you are an AK Steel stockholder of record, you may change your vote or revoke your proxy by:

 

   

voting again via the Internet or by telephone before 11:59 p.m. Eastern Time on [                ], 2020;

 

   

sending an executed proxy card dated later than your last vote that is received by AK Steel’s Corporate Secretary before the close of business on [                ], 2020;

 

   

delivering a written notice to AK Steel’s Corporate Secretary at 9227 Centre Pointe Drive, West Chester, Ohio 45069, stating that you are revoking your proxy; or

 

   

voting in person at the AK Steel special meeting.

If you are a beneficial owner of AK Steel common stock, you must contact your bank, broker or other nominee with whom you have an account to obtain information regarding changing your voting instructions.

Proxy Solicitation Costs

The enclosed proxy card is being solicited on behalf of the AK Steel board. In addition to solicitation by mail, AK Steel’s directors, officers and employees may solicit proxies in person, by telephone or by electronic means. These persons will not be specifically compensated for doing this.

AK Steel has retained Georgeson to assist in the solicitation process. AK Steel will pay Georgeson a fee of approximately $17,500 as well as reasonable and documented out-of-pocket expenses. AK Steel also has agreed to indemnify Georgeson against various liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions).

AK Steel will ask banks, brokers and other custodians, nominees and fiduciaries to forward the proxy solicitation materials to the beneficial owners of AK Steel common stock held of record by such nominee holders. AK Steel will reimburse these nominee holders for their customary clerical and mailing expenses incurred in forwarding the proxy solicitation materials to the beneficial owners.

Other Information

The matters to be considered at the AK Steel special meeting are of great importance to AK Steel stockholders. Accordingly, you are urged to read and carefully consider the information contained in or incorporated by reference into this joint proxy statement/prospectus and to submit your proxy via the Internet or by telephone or complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope, whether or not you plan to attend the AK Steel special meeting. If you submit your proxy via the Internet or by telephone, you do not need to return the enclosed proxy card.

 

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Vote of AK Steel Directors and Executive Officers

As of the close of business on January 3, 2020, AK Steel directors and executive officers and their respective affiliates, as a group, owned and were entitled to vote 2,486,581 shares of AK Steel common stock, representing less than 1.0% of the total number of shares AK Steel common stock outstanding as of January 3, 2020.

AK Steel currently expects that all of its directors and executive officers will vote their shares “FOR” the AK Steel merger proposal, “FOR” the AK Steel compensation proposal and “FOR” the AK Steel adjournment proposal.

Attending the AK Steel Special Meeting

You are entitled to attend the AK Steel special meeting only if you were a stockholder of record of AK Steel at the close of business on the record date or you held your shares of AK Steel common stock beneficially in the name of a bank, broker or other nominee as of the record date, or you hold a valid proxy from a record holder of AK Steel common stock for the AK Steel special meeting.

If a bank, broker or other nominee is the record owner of your AK Steel common stock, you will need to have proof that you were the beneficial owner of those shares as of the record date to be admitted to the AK Steel special meeting. A recent statement or letter from your bank, broker or other nominee confirming your ownership as of the record date, or presentation of a valid proxy from a bank, broker or other nominee that is the record owner of your shares, would be acceptable proof of your beneficial ownership.

You should be prepared to present government-issued photo identification for admittance to the AK Steel special meeting. If you do not provide government-issued photo identification or comply with the other procedures outlined above upon request, you might not be admitted to the AK Steel special meeting.

Results of the AK Steel Special Meeting

The preliminary voting results are expected to be announced at the AK Steel special meeting. In addition, within four business days following the AK Steel special meeting, AK Steel intends to file the final voting results with the SEC on a Current Report on Form 8-K. If the final voting results have not been certified within that four business day period, AK Steel will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four business days of the date that the final results are certified.

AK STEEL STOCKHOLDERS SHOULD CAREFULLY READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE AK STEEL MERGER PROPOSAL AND THE OTHER MATTERS TO BE VOTED ON AT THE AK STEEL SPECIAL MEETING.

 

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AK STEEL PROPOSALS

AK Steel Merger Proposal

It is a condition to completion of the Merger that AK Steel’s stockholders adopt the Merger Agreement. In the Merger, each AK Steel stockholder will be entitled to receive, for each share of AK Steel common stock that is issued and outstanding as of immediately prior to the effective time of the Merger, 0.400 Cliffs common shares (together with cash in lieu of any fractional Cliffs common shares and any applicable dividends or distributions on the Cliffs common shares with a record date at or after the effective time of the Merger). See the section entitled “The Merger Agreement—Merger Consideration” beginning on page [    ] for more information.

Approval of the AK Steel merger proposal requires the affirmative vote of the holders of a majority of the outstanding shares of AK Steel common stock entitled to vote on the proposal. The failure to submit a proxy card or to vote in person at the AK Steel special meeting, an “ABSTAIN” vote on the AK Steel merger proposal, or the failure of any AK Steel stockholder who holds shares of AK Steel common stock in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee, will have the same effect as a vote “AGAINST” the AK Steel merger proposal.

The AK Steel board recommends you vote “FOR” the AK Steel merger proposal.

AK Steel Compensation Proposal

AK Steel is asking its stockholders to vote to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to AK Steel’s named executive officers that is based on or otherwise relates to the Merger, as described in the section entitled “The Merger—Interests of AK Steel Directors and Executive Officers in the Merger—Merger-Related Compensation for AK Steel’s Named Executive Officers” beginning on page [    ]. This non-binding, advisory vote is required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, which were enacted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As an advisory vote, this proposal is not binding upon AK Steel or the AK Steel board and approval of this proposal is not a condition to the completion of the Merger. Because the compensation that may be paid or become payable to AK Steel’s named executive officers in connection with the Merger is based on the terms of the Merger Agreement as well as contractual arrangements with AK Steel’s named executive officers, such compensation will be payable to AK Steel’s named executive officers regardless of the outcome of this advisory vote, as long as the Merger Agreement is adopted and the Merger is completed (subject only to the contractual conditions applicable thereto). However, AK Steel seeks the support of its stockholders and believes that stockholder support is appropriate because AK Steel has a comprehensive executive compensation program designed to link the compensation of its executives with AK Steel’s performance and the interests of AK Steel stockholders. Accordingly, at the AK Steel special meeting, AK Steel stockholders are being asked to vote on the following resolution:

“RESOLVED, that the compensation that may be paid or become payable to the named executive officers of AK Steel Holding Corporation that is based on or otherwise relates to the Merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “Merger-Related Compensation for AK Steel’s Named Executive Officers” in the joint proxy statement/prospectus, including the associated narrative discussion, and the agreements, plans and other arrangements pursuant to which such compensation may be paid or become payable, be, and are hereby, APPROVED.”

Approval of the non-binding AK Steel compensation proposal requires the affirmative vote of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal. Abstentions will have the same effect as a vote “AGAINST” the AK Steel compensation proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds their shares in “street name” through a bank,

 

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broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel compensation proposal, assuming a quorum is present at the AK Steel special meeting.

The AK Steel board recommends that you vote “FOR” the AK Steel compensation proposal.

AK Steel Adjournment Proposal

AK Steel stockholders are also being asked to approve a proposal to adjourn the AK Steel special meeting to solicit additional proxies in favor of the AK Steel merger proposal in the event there are not sufficient votes at the time of the AK Steel special meeting to approve the AK Steel merger proposal. If the AK Steel special meeting is adjourned for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their exercise at the adjourned meeting.

Approval of the AK Steel adjournment proposal requires the affirmative vote of the holders of a majority of the shares of AK Steel common stock present in person or represented by proxy at the AK Steel special meeting and entitled to vote on the proposal, whether or not a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the AK Steel adjournment proposal, while the failure to submit a proxy card or to vote in person at the AK Steel special meeting, or the failure of any AK Steel stockholder who holds AK Steel common stock in “street name” through a bank, broker or other nominee to give voting instructions to such bank, broker or other nominee with respect to all of the AK Steel proposals, will have no effect on the AK Steel adjournment proposal.

The AK Steel board recommends you vote “FOR” the AK Steel adjournment proposal.

 

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THE MERGER

This discussion of the Merger is qualified in its entirety by reference to the Merger Agreement, which is attached to this joint proxy statement/prospectus as Annex A and incorporated by reference herein in its entirety. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

Transaction Structure

At the effective time of the Merger, Merger Sub will merge with and into AK Steel. As a result of the Merger, the separate corporate existence of Merger Sub will cease and AK Steel will continue as the surviving corporation and as a direct, wholly owned subsidiary of Cliffs.

Consideration to AK Steel Stockholders

As a result of the Merger, each share of AK Steel common stock issued and outstanding immediately prior to the effective time of the Merger (other than excluded shares, as defined below) will be converted into the right to receive the merger consideration of 0.400 Cliffs common shares as well as cash in lieu of any fractional Cliffs common shares as described below.

AK Steel stockholders will not be entitled to receive any fractional Cliffs common shares in the Merger, and no AK Steel stockholders will be entitled to any dividends or have any voting rights or any other rights in respect of any fractional Cliffs common shares. AK Steel stockholders that would have otherwise been entitled to receive a fractional Cliffs common share in the Merger will instead be entitled to receive, in lieu of fractional shares, an amount in cash, without interest, equal to the product of the average of the closing prices per Cliffs common share on the NYSE, as reported by The Wall Street Journal (or if not reported thereby, as reported in another authoritative source), for the five full trading days ending on the second business day immediately preceding the date on which the effective time of the Merger occurs, multiplied by the fraction of a Cliffs common share (after taking into account all of the shares of AK Steel common stock held by the holder at the effective time of the Merger and rounded to the nearest one thousandth) to which the holder would otherwise be entitled.

At the effective time of the Merger, all shares of AK Steel common stock (other than excluded shares) will cease to be outstanding and will automatically be cancelled and will cease to exist, and each certificate formerly representing any shares of AK Steel common stock, and each non-certificated share of AK Steel common stock represented by book entry will thereafter represent only the right to receive, without interest, the merger consideration, and the right, if any, to receive cash in lieu of any fractional Cliffs common shares into which such shares would have been converted and any distribution or dividend on Cliffs common shares issued in the Merger with a record date at or after the effective time of the Merger.

Restricted shares of AK Steel common stock and shares of AK Steel common stock owned as of immediately prior to the effective time of the Merger by Cliffs, Merger Sub or AK Steel (other than any shares of AK Steel common stock held by Cliffs, Merger Sub or AK Steel on behalf of third parties), which are referred to as the excluded shares, will be cancelled and will cease to exist, and no Cliffs common shares or other consideration will be delivered in exchange therefor (except with respect to AK Steel restricted shares which will be treated as described below under “The Merger Agreement—Treatment of Outstanding AK Steel Equity Awards in the Merger—Treatment of AK Steel Restricted Shares” beginning on page [     ]).

Background of the Merger

The senior management team and board of directors of AK Steel regularly review and discuss AK Steel’s performance, strategy, competitive position and strategic options, and, from time to time, include AK Steel’s legal and financial advisors in such review and discussions. In this regard, AK Steel regularly reviews and evaluates potential strategic alternatives as part of its ongoing efforts to strengthen and grow its overall business and to enhance value for its stockholders.

 

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Over the past several years, AK Steel has pursued a strategic agenda focused on working to transform its cost structure and operations with the goal of improving its competitive position and liquidity, decreasing its indebtedness and delivering value to its stockholders. As part of this strategic agenda, the AK Steel board and senior management team have evaluated a range of possible alternatives, taking into account, among other things, AK Steel’s existing operations, strategic priorities and capital requirements.

In early May 2018, Roger K. Newport, Chief Executive Officer of AK Steel, raised the possibility of Cliffs and AK Steel engaging in a strategic transaction with Lourenco Goncalves, Chairman, President and Chief Executive Officer of Cliffs. Mr. Newport inquired whether Mr. Goncalves would consider a potential joint venture involving the companies, focused on finding a potentially more productive use for one of AK Steel’s underperforming assets. In addition, Mr. Newport suggested that the companies might consider a more transformative transaction, as such an arrangement would secure for AK Steel reliable access to its most important raw material, while ensuring a long-term, dedicated customer for Cliffs. Mr. Goncalves indicated that, while he had not previously considered such a transaction, he could appreciate its strategic benefits and the potential value to both companies and would reflect on the idea.

There were no further discussions between the companies regarding potential joint venture opportunities, or any other material transaction, until mid-October 2018 when, at the request of Mr. Newport, Maurice A. Reed, Vice President, Strategic Planning and Business Development of AK Steel, contacted Mr. Goncalves to propose a meeting to discuss a potential joint venture opportunity involving AK Steel’s Ashland Works blast furnace. However, by late 2018, members of AK Steel management had concluded that, at that time, it was not economically feasible to implement the potential transaction in a manner that would generate meaningful value for AK Steel.

During the same period, the AK Steel board continued to evaluate and engage in discussions with members of AK Steel management and AK Steel’s legal and financial advisors with respect to, potential strategic alternatives available to AK Steel. At the AK Steel board’s October 18, 2018 meeting, members of AK Steel management reviewed with the AK Steel board various potential alternatives, including joint venture transactions involving several different U.S. and foreign steel producers and manufacturers that presented potential opportunities to (i) lower AK Steel’s costs of production, including through the sourcing of various raw materials, (ii) expand AK Steel’s scale and footprint, (iii) explore new alternatives both within and outside its existing footprint, (iv) create synergies through combining or optimizing production capabilities, (v) grow AK Steel’s downstream operations, (vi) make significant capital and other investments, including building or installing new technology in its existing mills, and (vii) improve the utilization of certain underperforming assets. During this meeting, members of AK Steel management also provided their views regarding the potential to pursue a more transformative transaction with certain of these identified joint venture counterparties, as well as other potential counterparties that may have interest in a significant transaction involving AK Steel. AK Steel management’s views were informed in part by certain in-depth and high-level discussions that AK Steel management had engaged in during 2017 and 2018 (and would continue to engage in during 2019) with over a dozen companies in the steel industry regarding potential joint venture and other opportunities for AK Steel to generate commercial and strategic value. In the course of certain of these discussions, AK Steel management, with the support of the AK Steel board, raised the possibility of undertaking a more transformative transaction, including a potential merger, sale or similar business combination. However, in each instance where AK Steel identified a transformative transaction that had the potential for execution, the potential counterparty indicated that, given its strategic agenda, the potential counterparty was not interested in pursuing such a transformative transaction, either at that time or at all.

During the latter part of 2018 (following the AK Steel board’s October 18, 2018 meeting) and the first half of 2019, AK Steel asked Goldman Sachs & Co. LLC, which is referred to as Goldman Sachs, and Credit Suisse Securities (USA) LLC, which is referred to as Credit Suisse, as well as a global management consulting firm to separately review potential strategic alternatives available to AK Steel, including the identification of potential counterparties to a transformative transaction involving AK Steel. None of these reviews, however, identified any potential counterparties that the AK Steel board and management viewed as likely having interest in pursuing an

 

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executable transaction that would generate meaningful value for AK Steel stockholders that had not already been considered or pursued by AK Steel.

As part of AK Steel’s continued evaluation of strategic alternatives, in November 2018 members of AK Steel management commenced discussions with a North American steel producer, which is referred to as Company A, with respect to a potential “merger of equals” transaction involving AK Steel and Company A. Over the next eleven months, AK Steel and Company A periodically engaged in a reciprocal due diligence review of their respective companies as well as preliminary negotiations regarding a potential transaction, including governance terms. AK Steel and Company A entered into a non-disclosure agreement, effective March 5, 2019, in connection with their consideration of the potential transaction, which included a customary mutual standstill provision that did not preclude private proposals to be made to the board of directors of the other party. AK Steel engaged Credit Suisse as its financial advisor in connection with a potential transaction involving Company A pursuant to an engagement letter effective February 1, 2019, while the AK Steel board worked with Goldman Sachs as its financial advisor. However, after further consideration, including unaddressed concerns regarding whether the potential transaction would improve AK Steel’s cost position and strengthen its credit profile, in September 2019, the AK Steel board, in consultation with management and AK Steel’s financial advisors, Credit Suisse and Goldman Sachs, determined not to proceed further with a potential transaction with Company A.

The AK Steel board also considered a potential transaction involving a different North American steel producer, which is referred to as Company B, with which AK Steel had previously discussed a potential combination and engaged in a reciprocal due diligence review in late 2016 and early 2017 before the AK Steel board determined in March 2017 that, at the time, pursuing a potential transaction with Company B was not in the best interests of AK Steel and its stockholders. In early April 2019, at the direction of the AK Steel board, Mr. Newport contacted the chief executive officer of Company B, who indicated he would be open to considering a potential transaction. However, after further consideration, in May 2019, the AK Steel board determined that it did not believe a transaction involving Company B would generate sufficient value for AK Steel stockholders in light of the risks associated with combining the companies and, accordingly, did not pursue any further discussions.

On August 20, 2019, Mr. Goncalves contacted Mr. Newport and indicated that Cliffs was interested in acquiring AK Steel’s Ashland Works blast furnace. Over the next few weeks, Mr. Goncalves and Mr. Newport engaged in a few additional preliminary discussions regarding the potential sale of the Ashland Works blast furnace.

On September 26, 2019, Mr. Newport and Mr. Goncalves spoke again to discuss next steps with respect to the potential sale of the Ashland Works blast furnace.

On September 27, 2019, Traci Forrester, Executive Vice President, Business Development of Cliffs, sent a proposed non-disclosure agreement for the potential acquisition by Cliffs of the Ashland Works blast furnace to Joseph C. Alter, Vice President, General Counsel and Corporate Secretary of AK Steel, which the parties finalized and entered into effective as of that same day.

On October 2, 2019, Mr. Newport and Mr. Goncalves met in Washington D.C. to discuss the status of the potential sale of the Ashland Works blast furnace, including the potential timeline for Cliffs to conduct its due diligence review and for the parties to negotiate and finalize the documentation for the transaction, as well as to obtain their requisite internal approvals. During this meeting, Mr. Goncalves and Mr. Newport again discussed the potential for (and agreed that it would be beneficial to both companies to continue discussions regarding) a more transformative transaction involving their companies, but decided at that time to focus on the proposed Ashland Works blast furnace transaction.

During the next two weeks, representatives of Cliffs and its advisors continued to conduct their due diligence review of the potential Ashland Works blast furnace transaction, including performing site visits to the Ashland Works facility.

 

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During early October 2019, Cliffs informed its legal counsel, Jones Day, that Cliffs was considering the potential acquisition of AK Steel in its entirety. Cliffs also informed Moelis of, and commenced working with Moelis in connection with, the potential transaction. Cliffs subsequently entered into an engagement letter with Moelis dated November 27, 2019.

On October 14, 2019, representatives of Goldman Sachs (including certain members of the team that would advise AK Steel in connection with the potential transaction) informally discussed with members of the Cliffs management team certain asset-based lending considerations, funding options and strategic growth opportunities for Cliffs. AK Steel was identified in the materials used by Goldman Sachs in such meeting as one of thirteen companies that presented potential strategic growth opportunities for Cliffs. Goldman Sachs’ materials included only publicly available information (e.g., market capitalization, enterprise value, 2019E EBITDA/multiple and indebtedness information) and did not contain potential price ranges, synergy calculations, or other transaction-specific information.

On October 16, 2019, certain members of Cliffs’ management team and representatives from Moelis and Jones Day met to discuss the possibility of a potential acquisition of AK Steel.

On October 17, 2019, Mr. Goncalves contacted Mr. Newport to discuss the status and timeline of the potential sale of the Ashland Works blast furnace. During this discussion, Mr. Goncalves informed Mr. Newport that the Cliffs management team had continued to consider the possibility of a more transformative transaction as previously discussed with Mr. Newport, and at the upcoming Cliffs board meeting on October 21, 2019, the Cliffs board would discuss potentially making an offer for Cliffs to acquire AK Steel. Mr. Goncalves and Mr. Newport then proceeded to further discuss the potential value creation opportunities for Cliffs shareholders and AK Steel stockholders in connection with such a transaction, as well as Cliffs’ expectations regarding the potential timeline should such a transaction occur. Mr. Newport informed Mr. Goncalves that the AK Steel board had a regularly scheduled board meeting from October 23 to October 25, 2019, and that he would discuss with the AK Steel directors any offer that Cliffs might make at that time.

On October 19, 2019, at the request of AK Steel’s then Chief Financial Officer, a representative of Credit Suisse provided the then Chief Financial Officer and Mr. Newport with materials, based solely on publicly available information, containing a high level overview of Cliffs and certain other illustrative data, assuming a transaction between AK Steel and Cliffs. The overview identified Cliffs’ management team, its geographic footprint, facilities and other operational information, Cliffs’ current capitalization and market performance and certain financial information. The materials also included illustrative exchange ratio and pro forma ownership data based on the companies’ respective trading prices over the prior two years and certain illustrative financial metrics that would result from a combination of the two companies based on publicly available information and broker consensus estimates of the companies’ respective future performance. The materials also included information regarding the premia paid in all-stock transactions involving consideration of greater than $500 million since 2010.

Later in October 2019, Mr. Alter informed AK Steel’s outside legal counsel, Weil, about the potential transaction with Cliffs. AK Steel also commenced working with Goldman Sachs in connection with the potential transaction. Prior to AK Steel commencing work with Goldman Sachs in connection with the potential transaction involving Cliffs, Goldman Sachs informed AK Steel that representatives of Goldman Sachs (including members of its proposed team to advise AK Steel in connection with the potential transaction) had assisted Cliffs on several financing transactions and from time to time provided Cliffs with advice with respect to strategic matters over the past several years. Subsequently, on November 15, 2019, representatives of Goldman Sachs provided a letter to the AK Steel board that disclosed certain relationships between Goldman Sachs and Cliffs with respect to past financing transactions and confirmed that nothing would limit Goldman Sachs’ ability to fulfill its responsibilities as financial advisor to AK Steel in connection with the potential transaction. AK Steel decided to work with Goldman Sachs in connection with the potential transaction based on its substantial experience in transactions similar to the proposed transaction, its familiarity with the steel industry and the AK

 

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Steel board’s view that Goldman Sachs had delivered excellent service during prior engagements with AK Steel, including during its consideration of a potential transaction involving Company A. AK Steel subsequently entered into an engagement letter with Goldman Sachs on November 27, 2019.

On October 21, 2019, the Cliffs board held its regularly scheduled meeting, which was attended by members of Cliffs management and representatives of Jones Day. The Cliffs board considered and discussed with members of Cliffs management a potential transaction with AK Steel, including the potential synergies of combining Cliffs and AK Steel and the potential upsides and potential challenges of a transaction with AK Steel. The Cliffs board then reviewed with members of Cliffs management and representatives of Jones Day a potential timeline for making an offer to acquire AK Steel and the transaction generally and considered the likely negotiation points to be resolved should the parties pursue a transaction. The members of the Cliffs board engaged in further discussions before it unanimously approved moving forward with submitting to AK Steel a non-binding proposal for the acquisition of AK Steel.

Later on October 21, 2019, on behalf of the Cliffs board, Mr. Goncalves delivered to Mr. Newport a written proposal, which is referred to as the October 21 proposal, for Cliffs’ acquisition of AK Steel in a stock-for-stock transaction with a fixed exchange ratio of 0.359 Cliffs common shares for each share of AK Steel common stock, which represented a premium of 10% to the thirty-day volume weighted average trading price for AK Steel common stock as of October 18, 2019, and would result in AK Steel stockholders, in their capacity as such, owning approximately 30% of the combined company immediately following the completion of the proposed transaction. The October 21 proposal indicated that Cliffs (i) believed two to three weeks would provide sufficient time for Cliffs and AK Steel to complete their respective reciprocal due diligence reviews, (ii) envisioned being in a position to sign a definitive agreement and announce a transaction by the first week of December, and (iii) required a response from AK Steel by 5:00 pm Eastern Time on October 30, 2019.

The AK Steel board held its regularly scheduled meeting at AK Steel’s headquarters in West Chester, Ohio from October 23 to October 25, 2019. During the course of these meetings, members of AK Steel management and representatives of Goldman Sachs reviewed with the AK Steel board their preliminary perspectives on the proposed transaction, as well as certain publicly available information and analyst reports regarding Cliffs. The materials reviewed with the AK Steel board by AK Steel management during its October 23, 2019 meeting included certain high-level information concerning Cliffs that was based, in part, on information previously reviewed with AK Steel’s then Chief Financial Officer and Mr. Newport on October 19, 2019, as described above.

In late October, Cliffs engaged Credit Suisse to, alongside Moelis, provide financial advisory services to Cliffs in connection with the potential transaction. Prior to being engaged by Cliffs, AK Steel provided Credit Suisse its consent for Credit Suisse (including members of the deal team that had previously provided formal and informal advice to AK Steel) to be engaged by Cliffs in connection with the Merger, and Credit Suisse agreed not to disclose to Cliffs any confidential information that Credit Suisse had received in connection with its prior work with AK Steel. Prior to Cliffs commencing work with Credit Suisse, Credit Suisse disclosed to Cliffs that Credit Suisse (including members of its proposed team to advise Cliffs in connection with the potential transaction) had assisted AK Steel on a number of confidential matters over the past several years. Credit Suisse also informed Cliffs that in October 2019 (prior to Credit Suisse being engaged by Cliffs) members of AK Steel management had discussed a potential transaction between AK Steel and Cliffs with certain representatives of Credit Suisse on an informal, non-engagement basis, and that Credit Suisse had provided certain high-level materials to AK Steel management that were based on publicly available information. Cliffs subsequently entered into an engagement letter with Credit Suisse effective as of October 27, 2019.

On October 29, 2019, a special telephonic meeting of the AK Steel board was held, which was attended by members of AK Steel management and representatives of Goldman Sachs, to further discuss the proposed transaction with Cliffs, including the terms of the October 21, 2019 proposal, perspectives regarding the appropriate premium payable with respect to AK Steel shares and the strategic rationale for the proposed

 

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transaction. During the meeting, members of AK Steel management also discussed with the AK Steel board their preliminary synergy assessments as well as certain considerations with respect to AK Steel’s and the combined company’s indebtedness. Representatives of Goldman Sachs also reviewed with the AK Steel board a comparison of Cliffs’ and AK Steel’s relative trading and market performance. Following these discussions, the AK Steel board agreed that a transaction with Cliffs could be beneficial to AK Steel stockholders, but that the proposed exchange ratio was too low for the board to conclude that such a combination would be in the best interests of AK Steel stockholders. After receiving and considering advice from its advisors, the AK Steel board discussed its initial view that an appropriate pro forma ownership for the combined company would involve AK Steel stockholders owning in the mid-30 percent range of the outstanding stock of the combined company. The AK Steel board then authorized Mr. Newport to continue to explore a potential combination with Cliffs on a non-binding basis, with the understanding that further discussions would need to be had with Cliffs to convey the AK Steel board’s belief that the proposed valuation was too low. The AK Steel board requested that a meeting be arranged between Ralph S. Michael, III, Chairman of the AK Steel board, and Mr. Goncalves to discuss various matters related to the proposed transaction.

On October 30, 2019, Mr. Newport spoke with Mr. Goncalves and informed him that the AK Steel board supported exploring a potential combination of Cliffs and AK Steel. Mr. Newport also conveyed the AK Steel board’s view regarding the proposed exchange ratio and ownership composition of the combined company. During the call, Mr. Newport and Mr. Goncalves discussed certain considerations with respect to the potential premium to be paid by Cliffs in the transaction, whether there was a possibility of AK Steel stockholders receiving some portion of the transaction consideration in cash and the AK Steel stockholders’ pro forma ownership of the combined Company. Mr. Goncalves and Mr. Newport decided that Cliffs’ and AK Steel’s respective financial advisors should continue discussions with respect to the proposed form and amount of consideration. Mr. Newport and Mr. Goncalves also discussed timing for the commencement of their respective company’s due diligence reviews and agreed to schedule a meeting between Mr. Goncalves and Mr. Michael, as the respective Chairmen of Cliffs and AK Steel.

Later on October 30, 2019, James Graham, Executive Vice President, Chief Legal Officer & Secretary of Cliffs, sent a proposed bilateral non-disclosure agreement for the potential transaction to Mr. Alter. AK Steel and Cliffs entered into the non-disclosure agreement on November 1, 2019.

On November 4, 2019, at the request of the AK Steel board, Messrs. Michael and Goncalves, the respective Chairmen of AK Steel and Cliffs, met in Cincinnati, Ohio to discuss the potential transaction, including the potential strategic rationale for the combination and the form and amount of consideration to be received by AK Steel stockholders, including the potential pro forma ownership of the combined company Messrs. Michael and Goncalves also discussed certain corporate governance matters, including the inclusion of AK Steel board members on the combined company’s board to ensure the board had representation from individuals familiar with AK Steel’s business, which, as had previously been discussed, was important from the perspective of the AK Steel board, and Cliffs’ offer to include three AK Steel board members on the combined company’s board. During the course of their discussion, Mr. Michael indicated that the AK Steel board believed that the AK Steel stockholders’ pro forma ownership in the combined company would need to be in the mid-30 percent range in order for the AK Steel board to be supportive of a transaction. Mr. Goncalves indicated that the Cliffs board was of the view that the transaction should include a fixed exchange ratio and that the Cliffs board was supportive of a valuation that would result in AK Steel stockholders having a pro forma ownership percentage of 30%. Mr. Michael also indicated it may be beneficial for Mr. Goncalves to be available to make a presentation to the AK Steel board at the AK Steel board’s final meeting to consider the proposed transaction. Neither during this meeting nor during prior or subsequent discussions among the parties in connection with the potential transaction were post-closing employment arrangements negotiated or agreed to with any members of AK Steel management.

Messrs. Newport and Goncalves spoke by telephone on each of November 5, 2019 and November 7, 2019 to discuss the status of the proposed transaction, including progress with respect to the bilateral due diligence process, their respective board review and approval processes and overall timing for the potential transaction. On

 

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November 5, 2019, Cliffs and AK Steel each provided the other party and their respective advisors with access to an electronic data room containing certain non-public information regarding such company. On November 8, 2019, Cliffs provided AK Steel the preliminary Cliffs unaudited forecasted financial information and AK Steel provided Cliffs certain preliminary forecasted information regarding AK Steel.

On November 8, 2019, members of management of Cliffs and AK Steel, as well as representatives of Weil and Jones Day, held a diligence call to discuss certain capital structure considerations in connection with the potential transaction. During the period commencing on November 7, 2019 through the execution of the Merger Agreement on December 2, 2019, AK Steel and Cliffs continued to conduct their business and financial due diligence reviews, with the assistance of their respective external advisors. In addition to customary diligence regarding finance, legal, tax, accounting, environmental, reserves, human resources, operations and related diligence matters, the parties focused considerable efforts on the collective identification and validation of potential synergies and understanding their respective capital structures and the impact of various sensitivities to their financial forecasts, including the potential impact of each company’s outstanding indebtedness on the structure of the transaction as well as the indebtedness of the combined company.

On November 13, 2019, members of management of Cliffs and AK Steel, together with representatives of Moelis, Credit Suisse, Jones Day, Goldman Sachs and Weil, met at Jones Day’s office in Columbus, Ohio. At the meeting, Cliffs and AK Steel each provided the other with a management presentation regarding its business. During their respective management presentations, AK Steel and Cliffs also reviewed with each other their respective preliminary five-year financial projections, which had been previously made available. The parties, with the assistance of their respective financial advisors, also subsequently engaged in a series of discussions regarding certain differences in the underlying assumptions used in preparing their respective financial projections. Upon consideration of the widely fluctuating nature of certain commodity prices that form key assumptions in AK Steel’s and Cliffs’ respective financial forecasts, and following consultation with representatives of Goldman Sachs, AK Steel management determined to subsequently revise its preliminary projections using commodity pricing assumptions that were based on a combination of its own macro-assumptions, the assumptions used by Cliffs in the Cliffs unaudited forecasted financial information and information from three other recognized third party sources in order to avoid over-reliance on any one source in its financial projections.

On November 14, 2019, Mr. Goncalves contacted Mr. Newport by telephone to follow up on their discussion the prior day with respect to certain financial sensitivity analyses and the underlying assumptions therefor as well as certain other considerations in connection with the potential transaction as well as Mr. Goncalves’ view regarding Cliffs’ outreach to rating agencies.

On November 15, 2019, the Cliffs board held a telephonic meeting, with members of Cliffs management and representatives of Jones Day in attendance. During the Cliffs board meeting, members of the Cliffs management team and representatives of Jones Day provided the Cliffs board with an update on the management presentations that had occurred on November 13, 2019 and on the status of the potential transaction, including the status of Cliffs’ due diligence efforts to date. The Cliffs board considered AK Steel’s financial position, the expected combined EBITDA performance of Cliffs and AK Steel, the potential synergies, the severance and change of control payments that may be owed to officers and other key employees of AK Steel as a result of the transaction, and the transaction structure. Members of the Cliffs management team indicated that Cliffs planned to meet with the rating agencies to obtain a private analysis of the likely impact of the acquisition of AK Steel on the credit ratings of Cliffs and AK Steel to evaluate whether the combined company would be negatively impacted by a ratings downgrade. Mr. Goncalves also provided the Cliffs board with an overview of the status of the proposed transaction, expected timing and the proposed financing structure as well as an update regarding his conversations with Mr. Newport and Mr. Michael, including the AK Steel board’s desire for an offer that would result in AK Steel stockholders having pro forma ownership in the combined company in the mid-30 percent range. The Cliffs board concluded the discussion by considering next steps and upcoming milestones with respect to the potential transaction. Separately, after completing the discussion on the potential transaction, the

 

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Cliffs board reviewed and discussed Cliffs’ five-year business plan. Following discussion, the Cliffs board unanimously approved Cliffs’ five-year business plan.

During the morning of November 15, 2019, the AK Steel board held a special telephonic meeting, with members of AK Steel management and representatives of Goldman Sachs and Weil in attendance. During the meeting, members of AK Steel management provided the AK Steel board with an update on the status of the potential transaction, including AK Steel’s due diligence efforts, and reviewed perspectives regarding the strategic rationale for the transaction and potential initial synergy opportunities that had been identified. AK Steel management also reviewed with the AK Steel board certain historical financial information concerning Cliffs as well as certain pro forma capital structure considerations with respect to the potential transaction. Representatives of Goldman Sachs then reviewed with the AK Steel board certain historical financial information concerning Cliffs as well as certain historical developments with respect to Cliffs’ business. The representatives of Goldman Sachs also discussed their preliminary analyses regarding Cliffs’ cost structure, including an overview of Cliffs’ and AK Steel’s respective performance relative to certain parties in the steel and iron ore markets, and provided an update on Cliffs’ and AK Steel’s respective trading multiples and the related impact on the potential exchange ratio for the transaction. At the conclusion of the meeting, the AK Steel board directed that Messrs. Newport and Michael should continue to negotiate the potential terms of the transaction with Mr. Goncalves, reiterating that the AK Steel board continued to desire that AK Steel stockholders have a greater pro forma ownership percentage of the combined company and to discuss including a cash component as part of its proposed consideration.

Following the respective telephonic meetings of the Cliffs and AK Steel boards earlier that day, on November 15, 2019, Messrs. Newport, Michael and Goncalves held a teleconference call to further discuss the potential transaction, including potential opportunities to create shareholder value, views regarding the potential synergies and financial sensitivity analyses, and the potential form and amount of consideration for the transaction. During this discussion, Mr. Michael reiterated AK Steel’s request (previously made by Mr. Newport to Mr. Goncalves on October 30) that the consideration in the merger consist of a combination of cash and equity, and Mr. Goncalves indicated that he did not believe that the Cliffs board would support the payment of any cash consideration.

On November 16, 2019, Jones Day, on behalf of Cliffs, sent an initial draft of the Merger Agreement for the proposed transaction to Weil. From November 16, 2019 until the execution of the Merger Agreement on December 2, 2019, the parties and their respective legal advisors exchanged numerous drafts, and engaged in numerous discussions and negotiations concerning the terms of the Merger Agreement and the related ancillary documents. During the course of these negotiations, significant areas of discussion and negotiation involved the amount and form of the merger consideration, including whether the consideration would be all-stock, the scope and degree of reciprocity of the representations, warranties and covenants, including the interim operating restrictions and the “no shop” provisions, the tax opinion-related closing condition, the level of commitment required from Cliffs in order to obtain regulatory approvals, the circumstances under which the board of directors of each party could change its recommendation in favor of the transaction, the circumstances under which the board of directors of each party would be permitted to terminate the Merger Agreement, including whether the parties would be permitted to terminate the agreement following its receipt of a superior proposal, and the amount of the termination-related fees payable in connection therewith.

Mr. Goncalves and Mr. Newport met in person on November 20, 2019 and spoke via telephone on each of November 20 and November 21, 2019 to discuss the status of the potential transaction, including the potential exchange ratio and the progress of the parties’ respective due diligence and synergy reviews and financial sensitivities analysis. During the in-person meeting on November 20, 2019, Mr. Goncalves indicated to Mr. Newport that it was his view that Cliffs’ financial analysis may be able to support an exchange ratio that would result in AK Steel stockholders, in their capacity as such, owning a greater percentage of the combined company than had been initially proposed in the October 21 proposal, but that he would need to discuss the analysis further with the Cliffs board.

 

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During a follow-up call on the morning of November 22, 2019, Messrs. Newport and Goncalves discussed the AK Steel board’s desire to include a cash component in the consideration or a collar on the exchange ratio as well as the anticipated timing for Cliffs’ delivery of a revised proposal to acquire AK Steel.

During the afternoon of November 22, 2019, the AK Steel board held a special telephonic board meeting, attended by representatives of Weil and Goldman Sachs, to discuss the potential transaction. Mr. Newport and other members of AK Steel management provided the AK Steel board with an update on the status of negotiations as well as the progress and results of their due diligence review and the joint work being undertaken with Cliffs and its financial advisors to identify and validate synergies. Representatives of Goldman Sachs then discussed with the AK Steel board its preliminary financial analyses. Representatives of Goldman Sachs also reviewed with the AK Steel board certain considerations with respect to the form of consideration and exchange ratio and AK Steel’s capital structure and discussed with the AK Steel board their view that there were unlikely to be other strategic partners that AK Steel had not had prior discussions with who, at the time, would be interested in entering into a potential transaction with AK Steel that would result in AK Steel stockholders receiving greater consideration than could be received in a transaction with Cliffs. Representatives of Weil provided the AK Steel board with a written review of the board’s fiduciary duties and also reviewed with the AK Steel board a summary of the proposed structure for the transaction and certain key terms that were under discussion in connection with the draft Merger Agreement, including proposed terms relating to the composition of the combined company’s board, the treatment of AK Steel’s existing indebtedness and the delivery by Cliffs of certain financing commitments, Cliffs’ regulatory undertaking and the circumstances in which the AK Steel board would be permitted to change its recommendation in favor of the transaction or terminate the Merger Agreement. Members of AK Steel management then again reviewed with the AK Steel board the strategic rationale for the potential transaction and their views regarding the potential strategic alternatives available to AK Steel and the potential for each to create significant value for AK Steel stockholders. Following the discussion, the AK Steel board directed AK Steel management to continue to negotiate the potential terms of the transaction, and instructed AK Steel management that the board was focused on the need for AK Steel stockholders to have a greater pro forma ownership percentage of the combined company.

On November 22, 2019, the Cliffs board held a telephonic meeting, with members of Cliffs management and representatives of Jones Day in attendance. The Cliffs management team provided an update on the proposed transaction. The Cliffs management team indicated that due diligence continued to progress well and Cliffs was continuing to find additional opportunities for potential synergies. Mr. Goncalves indicated that he and Mr. Newport continued to negotiate the pro forma ownership of AK Steel stockholders after the closing of the potential transaction. The Cliffs board asked additional questions about the potential synergies, pension liabilities of AK Steel, and change of control payments and retirement benefits that would be expected to be funded at the closing of the potential acquisition, all of which the Cliffs management team addressed. The Cliffs management team then addressed questions on the meetings with the rating agencies. The Cliffs board then considered next steps, including Mr. Goncalves continuing discussions with AK Steel, and upcoming milestones with respect to the potential transaction.

During the evening of November 22, 2019, Messrs. Newport, Goncalves and Michael spoke to discuss the feedback received at their respective board meetings as well as next steps for continuing to progress the potential transaction. During the discussion, Mr. Michael told Mr. Goncalves that the AK Steel board continued to be focused on the need for AK Steel stockholders to have a greater pro forma ownership interest in the combined company than what had been proposed by Cliffs.

On November 24, 2019, Messrs. Goncalves and Newport spoke to discuss the potential transaction, including the parties’ progress in analyzing the potential cost synergies that could result from the transaction, certain diligence matters and the parties’ respective views regarding the form and amount of the consideration to be received by AK Steel stockholders, including whether the exchange ratio for the potential transaction should be fixed and Cliffs’ continued view that the consideration should consist entirely of Cliffs’ equity securities.

 

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On November 25, 2019, Mr. Goncalves sent Messrs. Michael and Newport a revised written proposal for the acquisition of AK Steel by Cliffs, which is referred to as the November 25 proposal, at a fixed exchange ratio of 0.370 Cliffs common shares for each share of AK Steel common stock in an all-stock transaction, representing a 15% premium to AK Steel’s then-last closing price. The November 25 proposal, which would have resulted in AK Steel stockholders owning approximately 30% of the combined company, stated that it was Cliffs’ superior and final proposal for a potential transaction.

During the morning of November 26, 2019, Mr. Goncalves called Mr. Newport to provide an update on Cliffs’ estimate of the potential cost synergies for the potential transaction. During the discussion, Mr. Goncalves provided his view that Cliffs’ November 25 proposal was fair to AK Steel and its stockholders. Mr. Newport indicated that the AK Steel board would be discussing the proposal later that day but that, in his view, the proposal did not adequately address various items that Mr. Newport and Mr. Michael had conveyed as being important to the AK Steel board, including the desire for a higher level of pro forma ownership of the combined company by AK Steel stockholders.

On the afternoon of November 26, 2019, the AK Steel board held a special meeting by teleconference, attended by members of AK Steel management and representatives of Weil and Goldman Sachs. During the meeting, Messrs. Newport and Michael provided an update on their discussions with Mr. Goncalves in connection with the potential transaction. Members of AK Steel management then provided the board with an update on the status of negotiations regarding the Merger Agreement as well as the results of the parties’ ongoing synergies analysis, due diligence review and certain financial sensitivity analyses. Members of AK Steel management also presented to the AK Steel board forecasts for AK Steel on a standalone basis for the fiscal years ending December 31, 2020 through December 31, 2024 that had been prepared by AK Steel management as well as certain assumptions that had been used by AK Steel management in preparing the projections. Representatives of Goldman Sachs then discussed with the AK Steel board its preliminary financial analyses. Representatives of Goldman Sachs also discussed with the AK Steel board considerations with respect to various strategic alternatives potentially available to AK Steel, including continuing as a standalone company and undertaking certain portfolio restructuring activities, as well as Goldman Sachs’ view regarding the absence, at the time, of potential strategic alternative counterparties to an extraordinary transaction involving AK Steel that would result in AK Steel stockholders receiving greater consideration than could be received in a transaction with Cliffs. Weil then provided the AK Steel board with a written review of the board’s fiduciary duties and an overview of the status of certain key terms under discussion in connection with the draft Merger Agreement, including the board composition of the combined company, whether AK Steel would have the ability to terminate the Merger Agreement following its receipt of a superior proposal, and the efforts Cliffs would be required to use to obtain regulatory approvals for the transaction. Members of AK Steel management then discussed with the AK Steel board their views regarding the potential opportunities to create value for AK Steel stockholders in connection with the potential transaction relative to the various identified potential strategic alternatives available to AK Steel. After AK Steel management and its advisors left the meeting, the AK Steel board engaged in an extensive discussion regarding the potential strategic alternatives available to AK Steel and their ability to generate value for AK Steel stockholders, which included the potential impact of these alternatives on AK Steel’s competitive position and credit profile, the ability to generate synergies and improve the cost of AK Steel’s supply of iron ore and other raw materials, and whether the various alternatives were actionable and would provide a platform for future growth. Following this discussion, the AK Steel board determined that it was in the best interests of AK Steel to continue to pursue a potential transaction with Cliffs, but that the exchange ratio proposed by Cliffs in its November 25 proposal was not adequate. The AK Steel board also agreed that the form of consideration and potential need for downside protection in the form of a floating exchange ratio or collar continued to be open points and that the absence of either of these would result in the need for a higher exchange ratio in order for the AK Steel board to be in favor of the potential transaction. The AK Steel board directed Messrs. Newport and Michael to inform Cliffs that the proposed exchange ratio, form of consideration and downside protection would need to be improved, and told Messrs. Newport and Michael that they should initially propose an exchange ratio of 0.400 in anticipation of the fact that, based on Cliffs’ prior statements, Cliffs may only be willing to agree to a potential transaction that involved a fixed exchange ratio and all-stock consideration.

 

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During the evening of November 26, Messrs. Newport and Michael held a teleconference call with Mr. Goncalves to provide a response to the November 25 proposal. Messrs. Newport and Michael informed Mr. Goncalves that the proposed exchange ratio was inadequate, but that the AK Steel board would be willing to consider a potential transaction with an exchange ratio of 0.400, which would result in AK Steel stockholders having approximately a 32% pro forma ownership interest in the combined company. Messrs. Newport and Michael also expressed the AK Steel board’s ongoing interest in Cliffs including a cash component in the consideration or otherwise providing greater certainty in value to AK Steel stockholders through a collar on the exchange ratio, but Mr. Goncalves indicated that the concepts of a cash component or exchange ratio collar were unacceptable to Cliffs. Messrs. Newport and Michael indicated that, in the absence of a cash component, collar or floating exchange ratio, the AK Steel board would need the discussed higher exchange ratio in order to potentially support the proposed transaction and also provided the AK Steel board’s feedback regarding certain open items in the draft Merger Agreement. Mr. Goncalves indicated he would discuss AK Steel’s exchange ratio proposal with the Cliffs board the following day.

On November 27, 2019, the Cliffs board held a telephonic meeting, with members of Cliffs management and representatives of Jones Day in attendance. The Cliffs board discussed the exchange ratio and pro forma ownership in connection with the proposed transaction with AK Steel. Mr. Goncalves indicated that, after receiving the November 25 proposal, which included an exchange ratio of 0.370 equating to AK Steel stockholders having an approximate pro forma ownership percentage of approximately 30%, Messrs. Newport and Michael had countered with a proposed exchange ratio of 0.400, which would equate to a pro forma ownership percentage of approximately 32%. The Cliffs board discussed the counterproposal, considering the identified synergies and accretive nature of the counteroffer. Members of the Cliffs management team then reported on timing of the next steps of moving toward a transaction and described ongoing negotiations on the Merger Agreement with AK Steel as well as other milestones that would occur if each of Cliffs’ and AK Steel’s respective boards approved the transaction. A representative of Jones Day then discussed the voting requirements for each of Cliffs and AK Steel based on Ohio and Delaware law, as well as the rules of the NYSE and the companies’ governing documents. After additional discussion, the Cliffs board agreed to continue the negotiation process based on the AK Steel counteroffer of a fixed exchange ratio of 0.400.

During the afternoon of November 27, 2019, Messrs. Goncalves, Newport and Michael held a teleconference during which Mr. Goncalves indicated that the Cliffs board was supportive of AK Steel’s proposed exchange ratio, but that it would proceed only on the basis of an all-stock transaction. Later on November 27, 2019, on behalf of the Cliffs board, Mr. Goncalves delivered a letter indicating that Cliffs board was willing to proceed with a fixed exchange ratio of 0.400 Cliffs common shares for each share of AK Steel common stock, subject to, among other things, the finalization of the Merger Agreement terms in a manner satisfactory to Cliffs.

On the morning of November 29, 2019, a special telephonic meeting of the AK Steel board was held to provide an update on the proposed transaction. During the meeting, Messrs. Michael and Newport provided an update on their discussions with Mr. Goncalves, and representatives of Goldman Sachs also discussed their preliminary financial analyses. Representatives of Weil then reviewed with the AK Steel board the status of negotiations regarding the draft Merger Agreement and the resolution of certain key items that had previously been discussed with the AK Steel board, including that Cliffs had agreed to the parties each having the right to terminate the Merger Agreement in connection with a superior proposal and that the AK Steel board could change its recommendation in favor of the transaction in connection with certain intervening events affecting AK Steel or Cliffs.

During the period from November 29, 2019 through the execution of the Merger Agreement on December 2, 2019, representatives of Cliffs and AK Steel and their respective legal counsel, Jones Day and Weil, continued to work to finalize the definitive documentation for the transaction, including the debt commitment letters to be entered into by Cliffs.

On December 2, 2019, a special meeting of the AK Steel board was held in person in Detroit, Michigan for the purpose of considering the approval and adoption of the Merger Agreement with Cliffs. Representatives of

 

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Weil and Goldman Sachs as well as members of AK Steel management were also in attendance. At the beginning of the meeting, members of AK Steel management provided the AK Steel board with an update regarding the proposed transaction with Cliffs. Mr. Newport and Kirk Reich, President and Chief Operating Officer of AK Steel, also reviewed with the AK Steel board AK Steel’s opportunities and risks if it were to continue on a standalone basis as well as their views regarding the advantages of the proposed transaction. Representatives of Weil then provided the AK Steel board with an overview of the directors’ fiduciary duties under Delaware law. Following this review, Mr. Goncalves, who along with Mr. Graham and a representative of Jones Day had been invited by the AK Steel board to attend the meeting, met with the AK Steel board and discussed, among other things, Mr. Goncalves’ history with Cliffs, the improvements that had been made under his leadership in the preceding five years, the advantages and strategic rationale of combining Cliffs and AK Steel, the composition of the Cliffs board and his view of the synergy and growth opportunities available in connection with the potential transaction due to the complementary nature of the respective businesses. Following the departure of Mr. Goncalves, Mr. Graham and the representative of Jones Day from the meeting, representatives of Weil then reviewed with the AK Steel board a summary of the terms of the Merger Agreement and provided an update on the resolution of the negotiations regarding certain key terms, including Cliffs’ regulatory undertaking, the scope of intervening events that would permit the AK Steel board to change its recommendation in favor of the transaction in certain circumstances, and the ability of AK Steel to terminate the Merger Agreement in connection with a superior proposal. Representatives of Goldman Sachs then presented their financial analyses with respect to the proposed transaction. A representative of Goldman Sachs provided the AK Steel board with an oral opinion, which was subsequently confirmed in a written opinion dated December 2, 2019, that, as of the date of the written opinion and based upon and subject to the various assumptions, limitations, qualifications and factors set forth therein, the exchange ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders of shares of AK Steel common stock (other than Cliffs and its affiliates). Following discussion, the AK Steel board unanimously approved the Merger Agreement and the transactions contemplated thereby, including the Merger, declared the Merger Agreement to be advisable and in the best interests of AK Steel stockholders, and resolved to recommend that AK Steel stockholders vote to adopt the Merger Agreement. During the meeting, the AK Steel board also voted to adopt an amendment to the AK Steel by-laws to provide that the Court of Chancery in the State of Delaware will be the exclusive forum for the adjudication of certain disputes involving AK Steel.

After market close on December 2, 2019, a special telephonic meeting of the Cliffs board was held for the purpose of considering the approval of the Merger Agreement. Representatives of Jones Day, Moelis and Credit Suisse as well as members of Cliffs management also participated. Mr. Goncalves reported that the AK Steel board had unanimously approved the Merger Agreement at the AK Steel board’s meeting earlier that day. Representatives of Jones Day then discussed, among other things, (i) the Cliffs board’s fiduciary duties under Ohio law, (ii) the principal terms of the Merger Agreement, (iii) the regulatory approvals that would be required in the U.S., Mexico and Canada, (iv) the change of control payments that would be due upon closing of the transaction and (v) the voting requirements for the companies’ respective shareholders to approve the transaction. A representative of Moelis reviewed with the Cliffs board Moelis’ financial analysis with respect to the exchange ratio and delivered an oral opinion, which was subsequently confirmed by delivery of a written opinion, dated December 2, 2019, addressed to the Cliffs board to the effect that, as of the date of such opinion and based upon and subject to the assumptions made, procedures followed, matters considered and other limitations set forth in such opinion, the exchange ratio pursuant to the Merger Agreement was fair, from a financial point of view, to Cliffs. Following discussion, the Cliffs board unanimously approved the Merger Agreement, the Merger and the issuance of Cliffs shares in the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, and resolved to recommend that Cliffs shareholders vote in favor of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the issuance of Cliffs shares pursuant to the Merger Agreement.

Later that evening, Cliffs and AK Steel finalized and entered into the Merger Agreement. On December 3, 2019, prior to the opening of trading on the NYSE, Cliffs and AK Steel issued a joint press release announcing the transaction and their entry into the Merger Agreement.

 

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Recommendation of the Cliffs Board and Reasons for the Merger

The Cliffs board unanimously recommends that Cliffs shareholders vote “FOR” the Cliffs merger proposal.

The Cliffs board, with the advice and assistance of its financial and legal advisors, negotiated, evaluated, and, at a meeting held on December 2, 2019, unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

In reaching its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement and to recommend that Cliffs shareholders vote in favor of the Cliffs merger proposal, the Cliffs board consulted with its financial and legal advisors and Cliffs management. After such consultation, the Cliffs board unanimously determined the proposed Merger to be fair to, and in the best interests of, Cliffs.

In making its decision to approve the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, and to recommend that Cliffs shareholders vote in favor of the Cliffs merger proposal, the Cliffs board took into account a number of factors, including the following (which are not necessarily presented in order of relative importance):

 

   

Cliffs’ expected business, assets, financial condition, results of operations, business plan and prospects following the completion of the Merger, including the expected pro forma effect of the Merger on the combined company.

 

   

The belief of the Cliffs board that the Merger will create a best-in-class, vertically-integrated iron ore and steel producer.

 

   

Cliffs management’s identification of approximately $120 million in annual synergies (including approximately $40 million in annual public company cost savings), by way of selling, general and administrative, procurement and energy cost savings, as well as logistical and supply chain efficiencies.

 

   

That the Merger will provide a unique future opportunity for further electric arc furnace, which is referred to as EAF, oriented low capital expenditure growth through building a merchant pig iron facility within the existing AK Steel Ashland Works facility footprint, and thereby potentially avoiding closure costs of up to approximately $60 million.

 

   

The belief of the Cliffs board that the Merger will enhance revenue stream certainty for Cliffs’ pellet supply as a result of the vertical integration of AK Steel’s assets, existing long-term minimum volume contracts and hot briquetted iron facility requirements.

 

   

That the Merger will provide the potential for significant interest expense savings to the combined company resulting from the possible repayment or refinancing of AK Steel’s outstanding notes.

 

   

The attractiveness of the Merger to Cliffs in comparison to other acquisition opportunities reasonably available to Cliffs.

 

   

The Cliffs board’s knowledge of, and discussions with Cliffs management regarding, Cliffs’ business operations, financial condition, earnings and prospects and its knowledge of AK Steel’s business operations, financial condition, earnings and prospects, taking into account AK Steel’s publicly-filed information and the results of Cliffs’ due diligence investigation of AK Steel.

 

   

The stock consideration to be offered by Cliffs in the Merger and the expectation that the Merger would be accretive to Cliffs earnings per share and cash flow per share.

 

   

That the cash flow of the combined company following the Merger could provide additional opportunities to return value to shareholders.

 

   

The financial analysis presented to the Cliffs board by representatives of Moelis on December 2, 2019, and the oral opinion of Moelis rendered to the Cliffs board on December 2, 2019, confirmed by

 

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delivery of a written opinion dated December 2, 2019, as to the fairness, from a financial point of view, of the exchange ratio to Cliffs, as more fully described below in “The Merger—Opinion of Moelis, Cliffs’ Financial Advisor” beginning on page [    ].

 

   

That the combined company would continue to be led by the strong, experienced Cliffs management team and that the addition of three current AK Steel directors to the Cliffs board post-Merger would add further valuable expertise and experience and in-depth familiarity with AK Steel to the Cliffs board.

 

   

The review by the Cliffs board, in consultation with its legal advisors, of the structure of the proposed Merger and the other terms of the Merger Agreement, including each party’s representations, warranties and covenants, the conditions to each party’s obligations and the termination provisions and related termination fees payable by each party, as well as the likelihood of consummation of the proposed Merger and the Cliffs board’s evaluation of the likely time period necessary to close the Merger.

The Cliffs board also considered the following specific aspects of the Merger Agreement (which are not necessarily presented in order of relative importance):

 

   

The Cliffs board’s belief that the terms of the Merger Agreement, including each party’s representations, warranties and covenants and the conditions to each party’s obligations, are comprehensive and favorable to completing the proposed transaction.

 

   

That the exchange ratio is fixed and will not fluctuate in the event that the market price of AK Steel common stock increases relative to the market price of Cliffs common shares between the date of the Merger Agreement and the completion of the Merger.

 

   

The fact that if the Merger Agreement is terminated by Cliffs as a result of a change in recommendation of the AK Steel board or a breach by AK Steel of certain covenants in the Merger Agreement related to the non-solicitation of a competing acquisition proposal, this joint proxy statement/prospectus, or the AK Steel special meeting, then AK Steel has agreed to pay Cliffs a fee of $30 million.

 

   

The fact that there are limited circumstances in which the AK Steel board may terminate the Merger Agreement (including terminating to enter into a definitive agreement providing for the consummation of a superior proposal), or change its recommendation that AK Steel stockholders approve the AK Steel merger proposal, and if the Merger Agreement is terminated by AK Steel to enter into a definitive agreement providing for the consummation of a superior proposal, then AK Steel has agreed to pay Cliffs a fee of $30 million.

In the course of its deliberations, the Cliffs board also considered a variety of risks, uncertainties and other potentially negative factors, including the following (which are not necessarily presented in order of relative importance):

 

   

The risks and costs to Cliffs if the Merger is not completed, including the diversion of management and employee attention, and the potential effect on Cliffs’ stock price, and that, while the Merger is expected to be completed, there is no assurance that all conditions to the parties’ obligations to complete the Merger will be satisfied or waived, and as a result, it is possible that the Merger might not be completed at all or in a timely fashion, even if Cliffs shareholders approve the Cliffs merger proposal and AK Steel stockholders approve the AK Steel merger proposal.

 

   

That AK Steel stockholders may not approve the AK Steel merger proposal or that Cliffs shareholders may not approve the Cliffs merger proposal.

 

   

The risk that regulatory agencies may not approve the Merger or may impose terms and conditions on their approvals that adversely affect the business and financial results of Cliffs following the Merger as more fully described in the section entitled “The Merger—Regulatory Approvals” beginning on page [    ].

 

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The transaction costs to be incurred in connection with the Merger.

 

   

The fact that if the Merger Agreement is terminated by AK Steel as a result of a change in recommendation of the Cliffs board or a breach by Cliffs of certain covenants in the Merger Agreement related to the non-solicitation of a competing acquisition proposal, this joint proxy statement/prospectus, or the Cliffs special meeting, then Cliffs has agreed to pay AK Steel a fee of $30 million.

 

   

The fact that there are limited circumstances in which the Cliffs board may terminate the Merger Agreement (including terminating to enter into a definitive agreement providing for the consummation of a superior proposal) or change its recommendation that Cliffs shareholders approve the Cliffs merger proposal, and if the Merger Agreement is terminated by Cliffs to enter into a definitive agreement providing for the consummation of a superior proposal, then Cliffs has agreed to pay AK Steel a fee of $30 million.

 

   

That the Merger Agreement imposes limitations on Cliffs’ ability to make additional acquisitions that may impact the regulatory approval processes for the Merger.

 

   

That the pending Merger might discourage a third party from making a Cliffs acquisition proposal or change the terms on which a third party would be willing to make an acquisition proposal, and the opportunity cost to Cliffs of pursuing the Merger instead of other acquisition opportunities potentially available to Cliffs.

 

   

The ownership dilution to pre-Merger holders of Cliffs common shares as a result of the issuance of Cliffs common shares in connection with the Merger.

 

   

The risks associated with the occurrence of events that may materially and adversely affect the financial condition, properties, assets, liabilities, business or results of operations of AK Steel or its subsidiaries but not entitle Cliffs to terminate the Merger Agreement.

 

   

The risk that Cliffs may not realize all of the synergies and other anticipated strategic and other benefits of the Merger, including as a result of the challenges of integrating the businesses, operations and workforces of Cliffs and AK Steel, the risk that expected operating efficiencies and cost savings may not be realized or will cost more to achieve than anticipated, and the risk that divestitures or other accommodations required by antitrust regulatory authorities may decrease or eliminate the anticipated strategic and other benefits of the Merger to Cliffs.

 

   

Various other risks described in the section entitled “Risk Factors” beginning on page [    ].

The Cliffs board considered all of these factors as a whole and unanimously concluded that they supported a determination to approve the Merger Agreement, the Merger and the other transactions contemplated thereby. The foregoing discussion of the information and factors considered by the Cliffs board is not exhaustive. In view of the wide variety of factors considered by the Cliffs board in connection with its evaluation of the Merger and the complexity of these matters, the Cliffs board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above and any other factors, individual members of the Cliffs board may have viewed factors differently or given different weight or merit to different factors.

In considering the recommendation of the Cliffs board that Cliffs shareholders vote to approve the Cliffs merger proposal, Cliffs shareholders should be aware that the directors and executive officers of Cliffs may have certain interests in the Merger that may be different from, or in addition to, the interests of Cliffs shareholders generally. The Cliffs board was aware of these interests and considered them when approving the Merger Agreement and recommending that Cliffs shareholders vote to approve the Cliffs merger proposal.

The foregoing discussion of the information and factors considered by the Cliffs board is forward-looking in nature. This information should be read in light of the factors described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [    ].

 

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Opinion of Moelis, Cliffs’ Financial Advisor

At the meeting of the Cliffs board on December 2, 2019 to evaluate and approve the Merger Agreement and the transactions contemplated by the Merger Agreement, Moelis delivered an oral opinion, which was confirmed by delivery of a written opinion, dated December 2, 2019, addressed to the Cliffs board to the effect that, as of the date of the opinion and based upon and subject to the assumptions made, procedures followed, matters considered and other limitations set forth in the opinion, the exchange ratio in the Merger was fair, from a financial point of view, to Cliffs.

The full text of Moelis’ written opinion dated December 2, 2019, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. Moelis’ opinion was provided for the use and benefit of the Cliffs board (solely in its capacity as such) in its evaluation of the Merger. Moelis’ opinion is limited solely to the fairness, from a financial point of view, of the exchange ratio to Cliffs, and does not address Cliffs’ underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Cliffs. Moelis’ opinion does not constitute a recommendation as to how any holder of securities of Cliffs or AK Steel should vote or act with respect to the Merger or any other matter.

In arriving at its opinion, Moelis, among other things:

 

   

reviewed certain publicly available business and financial information, including publicly available research analysts’ financial forecasts, relating to AK Steel and Cliffs;

 

   

reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of AK Steel furnished to Moelis by AK Steel, including financial forecasts provided to or discussed with Moelis by the management of AK Steel (described on page [    ] of this joint proxy statement/prospectus under the caption “The Merger—Unaudited Forecasted Financial InformationAK Steel Unaudited Forecasted Financial Information” and referred to in this section as the AK Steel Projections);

 

   

reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of AK Steel furnished to Moelis by Cliffs, including financial forecasts provided to or discussed with Moelis by the management of Cliffs (described on page [    ] of this joint proxy statement/prospectus under the caption “The Merger—Unaudited Forecasted Financial Information—Cliffs-Adjusted AK Steel Unaudited Forecasted Financial Information” and referred to in this section as Cliffs’ Adjusted AK Steel Projections);

 

   

reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of Cliffs furnished to Moelis by Cliffs, including financial forecasts provided to or discussed with Moelis by the management of Cliffs (described on page [    ] of this joint proxy statement/prospectus under the caption “The Merger—Unaudited Forecasted Financial InformationCliffs Unaudited Forecasted Financial Information” and referred to in this section as the Cliffs Projections);

 

   

reviewed certain internal information relating (i) to cost savings, synergies and related expenses expected to result from the Merger furnished to Moelis by Cliffs, referred to in this section as the Expected Synergies, and (ii) certain other pro forma financial effects of the Merger furnished to Moelis by Cliffs;

 

   

reviewed capitalization information for Cliffs and AK Steel provided by Cliffs and AK Steel respectively;

 

   

conducted discussions with members of the senior managements and representatives of Cliffs and AK Steel concerning the information described in the foregoing six bullets, as well as the businesses and prospects of AK Steel and Cliffs generally;

 

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reviewed publicly available financial and stock market data of certain other companies in lines of business that Moelis deemed relevant;

 

   

reviewed the financial terms of certain other transactions that Moelis deemed relevant;

 

   

reviewed a draft, dated December 2, 2019, of the Merger Agreement;

 

   

participated in certain discussions among representatives of Cliffs and AK Steel and their advisors; and

 

   

conducted such other financial studies and analyses and took into account such other information as Moelis deemed appropriate.

In connection with its review, with the consent of the Cliffs board, Moelis relied on the information supplied to, discussed with or reviewed by it for purposes of its opinion being complete and accurate in all material respects. Moelis did not assume any responsibility for independent verification of (and did not independently verify) any of such information. With the consent of the Cliffs board, Moelis relied upon, without independent verification, the assessment of Cliffs and its legal, tax, regulatory and accounting advisors with respect to legal, tax, regulatory and accounting matters. With respect to the financial forecasts and other information relating to Cliffs, AK Steel, the Expected Synergies and other pro forma financial effects referred to above, Moelis assumed, at the direction of the Cliffs board, that they have been reasonably prepared on a basis reflecting the best then available estimates and judgments of the management of Cliffs or AK Steel, as the case may be, as to the future performance of Cliffs and AK Steel, such Expected Synergies (including the amount, timing and achievability thereof) and such other pro forma financial effects. At the direction of the Cliffs board, Moelis relied upon the Cliffs Projections and Cliffs’ Adjusted AK Steel Projections (and did not rely upon the AK Steel Projections) for the purposes of its analysis and opinion. At the direction of the Cliffs board, Moelis also relied upon Cliffs’ future pricing and tariff assumptions that are included in the Cliffs Projections and Cliffs’ Adjusted AK Steel Projections. Moelis also assumed, at the direction of the Cliffs board, that the future financial results (including the Expected Synergies) reflected in the Cliffs Projections and Cliffs’ Adjusted AK Steel Projections and other information (including the Expected Synergies) would be achieved at the times and in the amounts projected. In addition, at the direction of the Cliffs board, Moelis relied on the assessments of the management of Cliffs as to Cliffs’ ability to integrate the business of Cliffs and AK Steel. Moelis did not express any views as to the reasonableness of any financial forecasts or the assumptions on which they were based. In addition, with the consent of the Cliffs board, Moelis did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet, or otherwise) of Cliffs, AK Steel or any of their respective subsidiaries, nor was it furnished with any such evaluation or appraisal.

Moelis’ opinion did not address Cliffs’ underlying business decision to effect the Merger or the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Cliffs and did not address any legal, regulatory, tax or accounting matters. At the direction of the Cliffs board, Moelis was not asked to, and Moelis did not, offer any opinion as to any terms of the Merger Agreement or any aspect or implication of the Merger, except for the fairness of the exchange ratio from a financial point of view to Cliffs. Moelis’ opinion relates to the relative values of Cliffs and AK Steel. With the consent of the Cliffs board, Moelis did not express any opinion as to what the value of Cliffs’ common shares actually would be when issued pursuant to the Merger or the prices at which Cliffs’ common shares or AK Steel common stock might trade at any time. In rendering its opinion, Moelis assumed, with the consent of the Cliffs board, that the final executed form of the Merger Agreement would not differ from the draft that Moelis had reviewed in any respect material to its analysis, that the Merger would be consummated in accordance with its terms without any waiver or modification that could be material to its analysis, and that the parties to the Merger Agreement would comply with all the material terms of the Merger Agreement. Moelis assumed, with the consent of the Cliffs board, that all governmental, regulatory or other consents and approvals necessary for the completion of the Merger would be obtained and that in connection with obtaining the necessary governmental, regulatory or other consents or approvals, no restrictions, terms or conditions would be imposed that could be material to its analysis. In addition, representatives of Cliffs advised Moelis, and Moelis assumed, with the consent of the Cliffs board, that the Merger would qualify as a tax free reorganization for federal income tax purposes.

 

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Moelis’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Moelis as of, the date of the opinion, and Moelis assumed no responsibility to update its opinion for developments after the date of the opinion.

Moelis’ opinion did not address the fairness of the Merger or any aspect or implication thereof to, or any other consideration of or relating to, the holders of any class of securities, creditors or other constituencies of Cliffs or AK Steel. In addition, Moelis did not express any opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the Merger, or any class of such persons, whether relative to the exchange ratio or otherwise. Moelis’ opinion was approved by a Moelis fairness opinion committee.

Summary of Financial Analyses

The following is a summary of the material financial analyses presented by Moelis to the Cliffs board at its meeting held on December 2, 2019, in connection with its opinion. This summary describes the material analysis underlying Moelis’ opinion but does not purport to be a complete description of the analyses performed by Moelis in connection with its opinion.

Some of the summaries of financial analyses below include information presented in tabular format. In order to fully understand Moelis’ analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Moelis’ analyses.

For the purposes of Moelis’ analysis:

 

   

“Total Enterprise Value,” which is referred to as TEV, was generally calculated as the market value of the relevant company’s fully diluted common equity based on its closing stock price as of November 29, 2019, which is referred to as the “equity value,” (i) plus preferred stock, if any, (ii) plus debt, and (iii) less cash and cash equivalents (in each of the foregoing cases (i) through (iii), as of the relevant company’s most recently reported quarter end, except in the case of the DCF analysis described below, which utilized Cliffs or AK Steel management estimates of net debt as of December 31, 2019, as applicable). “Adjusted TEV” includes underfunded tax-effected pension and unfunded OPEB obligations.

 

   

“EBITDA” was generally calculated as the relevant company’s earnings before interest, taxes, depreciation and amortization, as adjusted to exclude (i) one-time charges and benefits and (ii) EBITDA associated with non-controlling interests because book value of non-controlling interests was excluded from TEV.

 

   

“EBITDAP” was generally calculated as the relevant company’s EBITDA plus pension expense, less pension income.

 

   

Based on information provided by Cliffs or AK Steel, as applicable, per share calculations assumed (i) basic outstanding Cliffs common shares and shares of AK Steel common stock as disclosed in the Merger Agreement, (ii) conversion of outstanding options and other equity-based awards as disclosed in the Merger Agreement, using the treasury stock method, with strike prices as provided by Cliffs management or AK Steel management, as applicable (other than long term performance plan shares and performance share awards, which were not taken into account), and (iii) the conversion of $316.25 million of Cliffs senior notes due 2025 (with the principal amount settled in cash) if the implied price per Cliffs common share is greater than $7.91.

 

   

Pro forma ownership calculations (a) with respect to Cliffs, (i) include basic shares outstanding as disclosed in the Merger Agreement, (ii) include options as disclosed in the Merger Agreement using

 

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the treasury stock method (with strike prices as provided by Cliffs management), (iii) include convertible debt (with the principal amount settled in cash), (iv) include restricted stock units as disclosed in the Merger Agreement, and (v) exclude performance shares; and (b) with respect to AK Steel, (i) include basic shares outstanding as disclosed in the Merger Agreement, (ii) include options as disclosed in the Merger Agreement using the treasury stock method (with strike prices as provided by AK Steel management), and restricted stock units as disclosed in the Merger Agreement, in each case for employees not included in the change of control costs provided by Cliffs management, (iii) exclude long-term performance plan shares or performance share awards, and (iv) exclude an illustrative estimated number of shares of AK Steel common stock associated with in-the-money options and restricted stock units included in change of control costs provided by Cliffs management.

Selected Publicly Traded Companies Analysis

Moelis performed a selected publicly traded companies analysis of each of Cliffs and AK Steel. Financial data for the selected publicly traded companies was based on public filings and other publicly available information available as of November 29, 2019. When utilizing 2020E adjusted EBITDAP and 2021E adjusted EBITDAP, Moelis used median Thomson consensus estimates as of November 29, 2019.

Because AK Steel has approximately $753 million in aggregate underfunded tax-effected pensions and unfunded OPEB obligations, Moelis added such amounts to TEV to derive Adjusted TEV to perform the selected publicly traded companies analysis on a more comparable basis. Further, Moelis added pension expense to EBITDA to derive adjusted EBITDAP so that the multiples were calculated in a consistent manner as the Adjusted TEV.

Cliffs

In the case of Cliffs, Moelis reviewed and analyzed, among other things, adjusted total enterprise value as a multiple of both estimated adjusted EBITDAP for calendar year 2020, which is referred to as 2020E Adj. EBITDAP, and estimated adjusted EBITDAP for calendar year 2021, which is referred to as 2021E Adj. EBITDAP; and certain other financial information and market trading data related to the following selected publicly traded raw materials suppliers to the steel sector whose operations Moelis believed, based on its experience and professional judgment, were generally relevant in certain respects to Cliffs, which are referred to as the Cliffs selected companies:

Cliffs Direct Selected Companies

 

   

ArcelorMittal

 

   

United States Steel Corporation, which is referred to as U.S. Steel

Cliffs Indirect Selected Companies

 

   

Champion Iron Limited, which is referred to as Champion

 

   

GrafTech International Ltd., which is referred to as GrafTech

 

   

SunCoke Energy, Inc., which is referred to as SunCoke

 

   

Vale S.A., which is referred to as Vale

Moelis noted that Cliffs produces iron ore pellets to supply blast furnace steel production. Moelis also noted that, as of the date of the opinion, Cliffs was also constructing a hot briquetted iron, which is referred to as HBI, plant in order to produce metallics for EAF steel producers. Therefore, Moelis reviewed a variety of raw materials suppliers to U.S. steel producers. In its analysis, Moelis focused on ArcelorMittal and U.S. Steel, which are collectively referred to as the Cliffs direct selected companies, because they are both integrated carbon steel

 

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manufacturers who contain producers of iron ore pellets within their North American operations. Although neither of the Cliffs direct selected companies is directly comparable to Cliffs, Moelis focused on these two companies, among other things, because they have one or more similar operating and financial characteristics with Cliffs, including: (i) being producers of iron ore pellets from a taconite reserve base, (ii) having a North American production base in the Great Lakes region (with both companies along with Cliffs forming the Hibbing Taconite joint venture) and (iii) having a similar relatively elevated leverage profile (with a ratio of adjusted total debt to estimated adjusted EBITDAP for calendar year 2019, which is referred to as 2019E Adj. EBITDAP, of approximately 3.5x).

Moelis did not include the remaining Cliffs selected companies, which are referred to as the Cliffs indirect selected companies, it reviewed in its financial analysis for the following reasons:

 

   

Champion is a Canadian ore producer which produces a concentrate product for the seaborne market only;

 

   

GrafTech produces a fundamentally different product in graphite electrodes, and its sole focus is as a supplier to EAF producers;

 

   

SunCoke produces a fundamentally different product in coke, and has a significant logistics/terminals business; and

 

   

Vale is a producer of iron ore pellets (but primarily fines) with South American operations, and is a significantly larger and more diversified company.

The following table summarizes the results of the selected publicly traded companies analysis for the Cliffs selected companies:

 

     Adj. TEV
($ in millions)
     Adj. TEV/
Adj. 2020E
EBITDAP
     Adj. TEV/
Adj. 2021E
EBITDAP
 

Cliffs direct selected companies

        

ArcelorMittal

   $ 31,097        4.6x        4.1x  

U.S. Steel

   $ 5,430        6.4x        5.2x  

Median

        5.5x        4.7x  

Cliffs indirect selected companies

        

Champion

   $ 887        3.0x        3.6x  

GrafTech

   $ 5,765        5.8x        4.2x  

SunCoke

   $ 1,188        4.7x        4.6x  

Vale

   $ 65,258        3.8x        4.0x  

Median

        4.2x        4.1x  

All Cliffs selected companies

        

Mean

   $ 15,706        4.7x        4.3x  

Median

   $ 5,430        4.6x        4.2x  

Cliffs

        

Median Thomson Consensus

   $ 4,080        8.7x        6.5x  

Median Thomson Consensus (HBI Adj.)(1)

   $ 4,505        6.8x        7.2x  

Cliffs Projections

   $ 4,080        7.1x        5.8x  

Cliffs Projections (HBI Adj.)(2)

   $ 4,528        6.1x        6.5x  

 

(1)

Cliffs management informed Moelis that it projects that the HBI facility will begin production in calendar year 2020 and produce approximately $29.5 million of EBITDA ramping up to $193.7 million in calendar year 2021 before increasing to full run-rate EBITDA of approximately $220 million. Moelis noted that equity research commentary suggests that most analysts were not including HBI earnings in their estimates for calendar year 2020. Therefore, Moelis adjusted consensus estimated EBITDA for calendar year 2020 by

 

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  $193 million and increased net debt by the projected remaining spend of $425 million to complete the facility.
(2)

Based on Cliffs management forecasts for HBI’s EBITDA contribution and remaining capital expenditure spend. Cliffs management did not provide HBI revenue contribution forecasts.

In light of the foregoing review and based on its professional judgment and experience, Moelis applied ranges of selected multiples derived from the Cliffs direct selected companies of (i) 6.0x to 7.0x to Cliffs’ 2020E Adj. EBITDAP and (ii) 6.5x to 7.5x to Cliffs’ 2021E Adj. EBITDAP to calculate implied equity value ranges for Cliffs, in each case without taking into account any potential value from net operating loss carryforwards, which are referred to as NOLs. In determining the low of end of the selected reference ranges, Moelis assumed that the bottom of the Cliffs ranges would be at a premium to the Cliffs direct selected companies because of Cliffs’ comparatively superior margin profile and its diversification to become a supplier to EAF steelmakers following completion of the Toledo, Ohio HBI plant. Moelis noted that because there are no other publicly traded U.S. based, pure play iron ore mining companies, it assumed Cliffs’ current multiples to establish the top end of the selected reference ranges. For purposes of its analysis, Moelis treated underfunded tax-effected pensions and unfunded OPEB obligations as debt-like items and adjusted for Cliffs HBI facility.

The stand-alone implied equity value ranges for Cliffs and implied per share price ranges for the Cliffs common shares derived from the selected publicly traded companies’ analysis are presented below:

 

     Implied Equity Value
($ in millions)(1)
     Implied Per Share
Price
 

2020E Adj. EBITDAP

   $ 2,077 - $2,814        $ 7.63 - $10.03    

2021E Adj. EBITDAP

   $ 2,185 - $2,883        $ 8.01 - $10.24    

 

(1)

Adjusted for underfunded tax-effected pensions and unfunded OPEB obligations.

Moelis noted that Cliffs’ market capitalization was approximately $2,178 million based on a price of $7.99 per Cliffs common share on November 29, 2019 and the number of Cliffs common shares outstanding on a fully diluted basis as provided by Cliffs management.

AK Steel

In the case of AK Steel, Moelis reviewed and analyzed Adjusted TEV as a multiple of both 2020E Adj. EBITDAP and 2021E Adj. EBITDAP; and certain other financial information and market trading data related to the following selected publicly traded steel producers whose operations Moelis believed, based on its experience and professional judgment, were generally relevant in certain respects to AK Steel, which are referred to as the AK Steel selected companies:

AK Steel Direct Selected Companies

 

   

Acerinox, S.A., which is referred to as Acerinox

 

   

ArcelorMittal

 

   

Carpenter Technology Corp., which is referred to as Carpenter

 

   

Stelco Holdings Inc., which is referred to as Stelco

 

   

U.S. Steel

AK Steel Indirect Selected Companies

 

   

Allegheny Technologies, Inc., which is referred to as Allegheny

 

   

Nucor Corporation, which is referred to as Nucor

 

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Steel Dynamics, Inc., which is referred to as Steel Dynamics

 

   

Worthington Industries, Inc., which is referred to as Worthington

Moelis noted that AK Steel, in addition to producing flat rolled carbon steel, produces stainless steel and other value added steel products. Therefore, Moelis reviewed a variety of steel value chain participants. In its analysis, Moelis focused on (i) ArcelorMittal, U.S. Steel and Stelco, each of which is an integrated carbon steel producer with North American operations, (ii) Carpenter, a North American stainless steel producer and (iii) Acerinox, a global stainless steel producer with significant North American operations, which are collectively referred to as the AK Steel direct selected companies. Although no AK Steel direct selected company is directly comparable to AK Steel, Moelis focused on them because, among other things, they have one or more similar operating and financial characteristics with AK Steel, including: (i) being integrated carbon steel or stainless steel producers, (ii) having a North American production base, (iii) having a similar leverage profile (with a ratio of adjusted total debt to 2019E Adj. EBITDAP (as defined below) of approximately 3.0x, other than in the case of Carpenter) and (iv) having a similar EBITDA margin profile.

Moelis did not include the remaining AK Steel selected companies, which are referred to as the AK Steel indirect selected companies, it reviewed in its financial analysis for the following reasons:

 

   

Allegheny is a North American specialty stainless steel producer with significant downstream value-added processes;

 

   

Nucor and Steel Dynamics are North American mini mill producers that have different raw material inputs, cost structures and focus end-markets; and

 

   

Worthington is a North American steel service center/processor that does not produce steel.

The following table summarizes the results of the selected publicly traded companies’ analysis for the AK Steel selected companies:

 

     Adj. TEV
($ in million)
     Adj. TEV/
Adj. 2020E
EBITDAP
     Adj. TEV/
Adj. 2021E
EBITDAP
 

AK Steel direct selected companies

        

Acerinox

   $ 3,473        7.1x        6.4x  

ArcelorMittal

   $ 31,097        4.6x        4.1x  

Carpenter

   $ 3,606        8.9x        7.6x  

Stelco

   $ 718        7.1x        3.9x  

U.S. Steel

   $ 5,430        6.4x        5.2x  

Median

        7.1x        5.2x  

AK Steel indirect selected companies

        

Allegheny

   $ 5,204        8.6x        7.6x  

Nucor

   $ 19,907        7.8x        7.4x  

Steel Dynamics

   $ 8,522        7.0x        7.3x  

Worthington

   $ 2,947        13.1x        11.2x  

Median

        8.2x        7.6x  

All AK Steel selected companies

        

Mean

   $ 8,989        7.9x        6.8x  

Median

   $ 5,204        7.1x        7.3x  

AK Steel

        

Median Thomson Consensus

   $ 3,569        8.7x        8.2x  

Cliffs’ Adjusted AK Steel Projections

   $ 3,569        7.1x        6.1x  

In light of the foregoing review and based on its professional judgment and experience, for AK Steel, Moelis applied ranges of selected multiples derived from the AK Steel direct selected companies of (i) 6.5x to

 

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8.5x to AK Steel’s 2020E Adj. EBITDAP and (ii) 6.0x to 8.0x to AK Steel’s 2021E Adj. EBITDAP to calculate implied equity value ranges for AK Steel, in each case without taking into account any potential value from NOLs. In determining the low end of the selected reference ranges, Moelis assumed that AK Steel would trade at a discount to Acerinox and Carpenter (both are primary stainless steel producers of high margin and value added stainless products, with Acerinox being a direct competitor of AK Steel and having superior North American market share), but at a premium to ArcelorMittal, Stelco and U.S. Steel (all three have relatively lower exposure to high value-add automotive end-markets and have weaker competitive position). Moelis noted that it assumed AK Steel’s current multiples to establish the top end of the selected reference ranges. For purposes of its analysis, Moelis treated underfunded tax-effected pensions and unfunded OPEB obligations as debt-like items.

The stand-alone implied equity value ranges for AK Steel and implied per share price ranges for the AK Steel common stock derived from the selected publicly traded companies’ analysis are presented below:

 

     Implied Equity Value
($ in millions)(1)
     Implied Per
Share Price
 

2020E Adj. EBITDAP

   $ 590 - $1,600        $ 1.86 - $5.03    

2021E Adj. EBITDAP

   $ 818 - $1,988        $ 2.58 - $6.24    

 

(1)

Adjusted for underfunded tax-effected pensions and unfunded OPEB obligations.

Moelis noted that AK Steel’s market capitalization was approximately $876 million based on a price of $2.76 per share of AK Steel common stock on November 29, 2019 and the number of shares of AK Steel common stock outstanding on a fully diluted basis as provided by AK Steel management.

Selected Publicly Traded Companies-Based Implied Exchange Ratio Analysis

Based on the implied equity value ranges and the implied per share price ranges presented above, Moelis calculated implied ranges of the exchange ratio and pro forma ownership percentage of the pre-Merger holders of Cliffs common shares in the combined company after giving effect to the Merger, which is referred to as the pro forma Cliffs ownership percentage, which are presented below:

 

     Implied Exchange
Ratio(1)
     Implied Pro Forma
Cliffs Ownership
Percentage(2)
 

2020E Adj. EBITDAP

     0.186x - 0.659x          82.7% - 56.5%    

2021E Adj. EBITDAP

     0.251x - 0.779x          77.9% - 52.4%    

 

(1)

The low end of the range of the implied exchange ratio represents the high end of the range of implied value per Cliffs common share versus the low end of the range of implied value per share of AK Steel common stock. The high end of the range of the implied exchange ratio represents the low end of the range of implied value per Cliffs common share versus the high end of the range of implied value per share of AK Steel common stock.

(2)

The high end of the range of the implied pro forma Cliffs ownership percentage represents the high end of the implied equity value range of Cliffs versus the low end of the implied equity value range of AK Steel. The low end of the range of the implied pro forma Cliffs ownership percentage represents the low end of the implied equity value range of Cliffs versus the high end of the implied equity value range of AK Steel.

Moelis compared the implied ranges of the exchange ratio above to the exchange ratio of 0.400x in the Merger and the implied ranges of pro forma Cliffs ownership percentage above to the implied pro forma Cliffs ownership percentage of approximately 68.4% at the exchange ratio of 0.400x.

Discounted Cash Flow Analysis

Moelis performed discounted cash flow, which is referred to as DCF, analyses of both Cliffs and AK Steel to calculate the present value of the estimated future unlevered free cash flows projected by Cliffs management

 

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to be generated by Cliffs and AK Steel and an estimate of the present value of the terminal value of each of Cliffs and AK Steel. For purposes of the DCF analysis, Moelis treated estimates for stock-based compensation as a cash expense.

Cliffs

Moelis calculated Cliffs’ unlevered free cash flow as Adjusted EBITDAP, less cash taxes, plus alternative minimum tax refunds, less increases in net working capital, plus decreases in net working capital, and less capital expenditures, all as provided by Cliffs management.    

Moelis utilized a range of discount rates of 8.50% to 10.00% based on an estimated range of Cliffs’ weighted average cost of capital, which is referred to as the WACC. The WACC range reflected a derived cost of equity using (i) a risk-free rate based on 20-year U.S. government bonds, (ii) a selected range of unlevered betas and debt to total capitalization ratios informed by the Cliffs selected companies described above, (iii) an equity risk premium and (iv) a size premium. Moelis used the foregoing range of discount rates to calculate estimated present values as of December 31, 2019 of (i) estimated after-tax unlevered free cash flows of Cliffs for the calendar years ending December 31, 2020 through December 31, 2024 (in each case, discounted using a mid-year discounting convention) and (ii) estimated terminal values derived by applying a range of multiples of 6.0x to 7.0x to a terminal EBITDAP calculated as the average of Cliffs’ actual and estimated adjusted EBITDAP for the calendar years ending December 31, 2018 through December 31, 2024 (selected due to the view of Cliffs management that U.S. tariffs on steel imports will continue for the foreseeable future due to global oversupply and national security concerns). Moelis’ selection of the foregoing terminal value multiple range was informed by Cliffs’ 10-year historical average multiple of Adjusted TEV to next twelve months, which is referred to as NTM, EBITDA of 6.8x (adjusted for irregularities) and the minor spread of approximately 0.1x between its current EBITDA and EBITDAP multiples. For purposes of its analysis, Moelis treated underfunded tax-effected pensions and unfunded OPEB obligations as debt-like items.

In calculating the implied equity value range of Cliffs, Moelis separately valued Cliffs’ NOLs on a levered, post-interest basis assuming an NOL balance of $1,925 million as provided by Cliffs management using a cost of equity range of 10.5% to 17.0% and the Cliffs Projections (including with respect to tax rates) for calendar years 2020 through 2024 resulting in an implied present value range of approximately $172 million to $197 million.

The stand-alone implied equity value ranges and implied per share price ranges for the Cliffs common shares derived from the DCF analysis are presented below:

 

     Implied Equity Value(1)
($ in millions)
     Implied Per Share
Price
 

Excluding NOLs

   $ 2,166 - $2,843        $ 7.95 - $10.12    

Including NOLs

   $ 2,338 - $3,040        $ 8.50 - $10.75    

 

(1)

Adjusted for underfunded tax-effected pensions and unfunded OPEB obligations.

Moelis noted that the implied terminal value represented approximately 61% - 64% of total implied DCF net present value for Cliffs (excluding NOLs). Moelis also noted that the foregoing ranges (excluding NOLs) resulted in a range of implied perpetuity growth rates of negative 4.0% to negative 1.1%.

AK Steel

Moelis calculated AK Steel’s unlevered free cash flow as Adjusted EBITDAP, less pension expense, plus pension income, less cash taxes, plus non-cash pension expense, less non-cash pension benefit, less increases in net working capital, plus decreases in net working capital, less capital expenditures and less closure costs of the Ashland Works facility, all as provided by Cliffs management.

 

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For AK Steel, Moelis utilized a range of discount rates of 8.50% to 11.00% based on an estimated range of AK Steel’s WACC. The WACC range reflected a derived cost of equity using (i) a risk-free rate based on 20-year U.S. government bonds, (ii) a selected range of unlevered betas and debt to total capitalization ratios informed by the AK Steel selected companies described above, (iii) an equity risk premium and (iv) a size premium. Moelis used the foregoing range of discount rates to calculate estimated present values as of December 31, 2019 of (i) estimated after-tax unlevered free cash flows of AK Steel for the calendar years ending December 31, 2020 through December 31, 2024 (in each case, discounted using a mid-year discounting convention) and (ii) estimated terminal values derived by applying a range of multiples of 6.0x to 7.5x to a terminal EBITDAP calculated as the average of AK Steel’s actual and estimated adjusted EBITDAP for the calendar years ending December 31, 2018 through December 31, 2024 (selected due to the view of Cliffs management that U.S. tariffs on steel imports will continue for the foreseeable future due to global oversupply and national security concerns). Moelis’ selection of the foregoing terminal value multiple range was informed at the top end by AK Steel’s 10-year historical average multiple of Adjusted TEV to NTM EBITDA of 6.1x and the spread of approximately 1.5x between its current EBITDA and EBITDAP multiples and at the bottom end by the average multiple for the AK Steel direct selected companies due to the implementation of U.S. tariffs on steel imports. For purposes of its analysis, Moelis treated underfunded tax-effected pensions and unfunded OPEB obligations as debt-like items.

In calculating the implied equity value range of AK Steel, Moelis separately valued AK Steel’s NOLs on a levered, post-interest basis assuming an NOL balance of $2,184 million as provided by AK Steel management using a cost of equity range of 8.5% to 14.5% and Cliffs’ Adjusted AK Steel Projections (including with respect to tax rates) for calendar years 2020 through 2024; for calendar years 2025 through 2027 Moelis held constant AK Steel’s earnings before interest and taxes, calculated as the average of AK Steel’s actual and estimated earnings before interest and taxes for the calendar years ending December 31, 2018 through December 31, 2024) resulting in an implied present value range of approximately $327 million to $394 million.

The stand-alone implied equity value ranges and implied per share price ranges for the AK Steel common stock that were derived from the DCF analysis are presented below:

 

     Implied Equity Value(1)
($ in million)
     Implied Per
Share Price
 

Excluding NOLs

   $ 825 - $1,765        $ 2.60 - $5.54    

Including NOLs

   $ 1,152 - $2,159        $ 3.62 - $6.78    

 

(1)

Adjusted for underfunded tax-effected pensions and unfunded OPEB obligations.

Moelis noted that the implied terminal value represented approximately 61% - 68% of total implied DCF net present value for AK Steel (excluding NOLs). Moelis also noted that the foregoing ranges (excluding NOLs) resulted in a range of implied perpetuity growth rates of negative 1.0% to positive 3.0%.

DCF-Based Exchange Ratio and Ownership Percentage

Based on the stand-alone implied equity value ranges and implied share price ranges for Cliffs and AK Steel presented in the DCF analysis above, Moelis calculated implied ranges of the exchange ratio and the pro forma Cliffs ownership percentage, which are presented below:

 

     Implied Exchange
Ratio(1)
     Implied Pro Forma Cliffs
Ownership Percentage(2)
 

Excluding NOLs

     0.257x - 0.697x        77.5% - 55.1%  

Including NOLs

     0.337x - 0.797x        72.5% - 52.0%  

 

(1)

The low end of the range of the implied exchange ratio represents the high end of the range of implied value per Cliffs common share versus the low end of the range of implied value per share of AK Steel common

 

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  stock. The high end of the range of the implied exchange ratio represents the low end of the range of implied value per Cliffs common share versus the high end of the range of implied value per share of AK Steel common stock.
(2)

The high end of the range of the implied pro forma Cliffs ownership percentage represents the high end of the implied equity value range of Cliffs versus the low end of the implied equity value range of AK Steel. The low end of the range of the implied pro forma Cliffs ownership percentage represents the low end of the implied equity value range of Cliffs versus the high end of the implied equity value range of AK Steel.

Moelis compared the implied range of the exchange ratio above to the exchange ratio of 0.400x in the Merger and the implied range of pro forma Cliffs ownership percentage to the implied pro forma Cliffs ownership percentage of approximately 68.4% at the exchange ratio of 0.400x.

Transaction Analysis

DCF-Based Has/Gets Analysis

Moelis performed a DCF-based has/gets analysis to calculate value accretion/dilution to the pre-Merger holders of Cliffs common shares implied by the Merger. The DCF-based has/gets analysis compared the standalone implied DCF equity value of Cliffs with the implied aggregate value of the pro forma equity in the combined company that is owned by the pre-Merger holders of Cliffs common shares after giving effect to the Merger.

To calculate the pro forma DCF value of the combined company after giving effect to the Merger, Moelis utilized (i) the implied stand-alone DCF equity value ranges (including NOLs) for Cliffs and AK Steel described above, (ii) the implied present value range of expected annual run-rate synergies of approximately $120 million (net of change of control costs of approximately $135 million at the consummation of the Merger and an additional $5 million expected to be incurred in calendar year 2020) provided by Cliffs management discounted using the same WACC and derived from using the same terminal multiple ranges as those used to estimate the implied DCF stand-alone equity value ranges for Cliffs, (iii) expected transaction costs of approximately $65 million as provided by Cliffs management, and (iv) an adjustment to take into account the maximum utilization of existing NOLs of AK Steel at the long-term exempt rate of 1.59% (assuming that AK Steel’s NOLs would be subject to limitations under Section 382 of the Code as a result of the Merger based on information provided by Cliffs management).

The following table summarizes the results of the DCF-based has/gets analysis:

 

($ in million)

   Low     High  

Standalone Cliffs per Share Value

   $ 8.50     $ 10.75  

Pro Forma Cliffs per Share Value

   $ 9.54     $ 13.41  

Increase (%)

     12.2     24.7

Other Information

Moelis also noted for the Cliffs board certain additional factors that were not considered part of Moelis’ financial analysis with respect to its opinion but were referenced for informational purposes only, including, among other things:

Selected Precedent Transactions Analysis

Moelis performed a selected precedent transactions analysis solely with respect to AK Steel, and not with respect to Cliffs because Cliffs would be the surviving company in the Merger, existing Cliffs shareholders would own approximately 68% of the pro forma equity of the combined company after the Merger and Cliffs

 

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management would operate the combined company. Moelis did not rely on the selected precedent transaction analysis because (i) none of the selected precedent transactions involved targets that were close operational comparables to AK Steel and (ii) most of the selected precedent transactions occurred over 10 years before the imposition of U.S. steel tariffs in March 2018.

For its selected precedent transaction analysis, Moelis reviewed certain financial information related to transactions that met the following criteria: (i) the target was a producer of carbon or stainless steel, (ii) transactions that did not involve service centers or downstream processing and (iii) transactions announced within the past 15 years to capture the full steel/commodity price cycle, which is referred to as the selected precedent transactions.

For informational purposes only, Moelis noted, to the extent information was publicly available (i) the implied transaction values of the selected precedent transaction as a multiple of the relevant acquired company’s EBITDA for the LTM period immediately preceding announcement of the relevant transaction and (ii) the implied transaction values of the selected precedent transaction adjusted for adjusted net debt (including tax-effected OPEB and pension underfunding) where available, as a multiple of Adjusted EBITDAP for such LTM period.

 

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The information noted by Moelis with respect to the selected precedent transactions is summarized below:

 

Date Announced

 

Target

 

Acquirer

 

Target Type

  Transaction
Value ($ in
million)
    Adj.
Transaction
Value ($ in
millions)
   

TEV/
EBITDA

  Adj. TEV/
Adj.
EBITDAP
 

11/7/2019

  VDM Metals Holding GmbH   Acerinox   Specialty Alloys / Stainless   $ 588     $ 588         5.5x  

5/16/2018

  Nisshin Steel   Nippon Steel & Sumitomo Metal Corp   Stainless Sheet   $ 2,740     $ 2,901     5.8x     6.3x  

2/27/2017

  ThyssenKrupp Slab International B.V.   Ternium S.A.   Carbon Slab   $ 1,891     $ 1,891     7.0x      

12/9/2007

  Claymont Steel Holdings, Inc.   Evraz Group S.A.   Carbon Plate   $ 570     $ 570     9.7x(1)      

8/1/2007

  Stelco Inc.   U.S. Steel   Carbon Sheet   $ 1,860     $ 1,860     9.3x      

4/30/2007

  Grupo IMSA S.A.B. de C.V.   Ternium S.A.   Carbon Sheet   $ 3,100     $ 3,100     6.9x      

4/15/2007

  Algoma Steel Inc.   Essar Global Limited   Carbon Sheet   $ 1,511     $ 1,730     4.9x     4.4x  

1/31/2007

  Corus Group Plc   Tata Steel   Carbon Sheet / Long Products   $ 12,168     $ 12,168     7.7x      

11/20/2006

  Oregon Steel Mill   Evraz Group S.A.   Carbon Plate, Rod / Bar & Rail   $ 2,301     $ 2,338     6.9x     6.9x  

1/27/2006

  Arcelor   Mittal Steel   Carbon Sheet / Long Products & Stainless   $ 37,240     $ 39,666     5.3x     5.7x  

High

            9.7x     6.9x  

Median

            6.9x     5.7x  

Average

            7.0x     5.8x  

Low

            4.9x     4.4x  

 

(1)

Multiple based on annualized Q2 2007 EBITDA of $50mm; TEV / LTM EBITDA multiple of 41.3x.

Moelis noted that if a range of selected multiples of 6.5x to 8.5x (based on the median of the observed multiples) were to be applied to the estimated adjusted EBITDAP of AK Steel for the calendar year ending on December 31, 2019, AK Steel’s implied total equity value would range from approximately $178 million to $1,061 million, resulting in an implied price per share of AK Steel common stock of $0.56 to $3.34.

 

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Based on these implied equity value ranges and implied share price ranges for AK Steel, Moelis derived the following illustrative implied ranges of the exchange ratio and pro forma Cliffs ownership percentage utilizing the ranges of the implied equity values for Cliffs derived using the selected companies’ analysis described above.

 

     Implied Exchange
Ratio(1)
     Implied Pro Forma
Cliffs Ownership
Percentage(2)
 

AK Steel Selected Precedent Transactions Analysis / Cliffs Publicly Traded 2020E EBITDAP

     0.056x - 0.437x        94% - 66%  

AK Steel Selected Precedent Transactions Analysis / Cliffs Publicly Traded 2021E EBITDAP

     0.055x - 0.417x        94% - 67%  

 

(1)

The low end of the range of the implied exchange ratio represents the high end of the range of implied value per Cliffs common share versus the low end of the range of implied value per share of AK Steel common stock. The high end of the range of the implied exchange ratio represents the low end of the range of implied value per Cliffs common share versus the high end of the range of implied value per share of AK Steel common stock.

(2)

The high end of the range of the implied pro forma Cliffs ownership percentage represents the high end of the implied equity value range of Cliffs versus the low end of the implied equity value range of AK Steel. The low end of the range of the implied pro forma Cliffs ownership percentage represents the low end of the implied equity value range of Cliffs versus the high end of the implied equity value range of AK Steel.

Moelis compared the implied ranges of the exchange ratio above to the exchange ratio of 0.400x in the Merger and the implied ranges of pro forma Cliffs ownership percentage above to the implied pro forma Cliffs ownership percentage of approximately 68.4% at the exchange ratio of 0.400x.

Additional Information

 

   

Moelis reviewed the relative performance of the Cliffs common shares and the AK Steel common stock over the five-year, three-year, one-year, six-months and three-months periods ended November 29, 2019 as well as for the period since the meeting of the Cliffs board on October 18, 2019 as set forth in the following table:

 

     Relative Performance  
     5-years     3-years     1-year     6 months     3 months     Since
10/18/19
 

Cliffs

     (12 %)      (9 %)      (14 %)      (9 %)      1     15

AK Steel

     (53 %)      (169 %)      (10 %)      59     28     12

 

   

Moelis noted the one-year forward stock price targets for the Cliffs common shares in eight recently-published Wall Street research analyst reports, which indicated undiscounted low and high stock price targets ranging from $7.00 to $12.00 per share, with an average of $9.23 per share compared with the closing price per Cliffs common share of $7.99 per share on November 29, 2019.

 

   

Moelis also noted the one-year forward stock price targets for the AK Steel common stock in seven recently-published Wall Street research analyst reports, which indicated undiscounted low and high stock price targets ranging from $1.00 to $2.50 per share, with an average of $1.96 per share compared with the closing price per share of AK Steel common stock of $2.76 per share on November 29, 2019.

 

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Moelis reviewed the average implied exchange ratio implied by the trading prices of the Cliffs common shares and AK Steel common stock over the five-year, three-year, one-year, six-months and three-months periods ended November 29, 2019 as well as for the period since the meeting of the Cliffs board on October 18, 2019 as set forth in the following table:

 

Average Implied Exchange Ratio

5-years

   3-years    1-year    6 months    3 months    Since
10/18/19
0.733x    0.578x    0.282x    0.285x    0.333x    0.345x

Miscellaneous

This summary of the analyses is not a complete description of Moelis’ opinion or the analyses underlying, and factors considered in connection with, Moelis’ opinion. The preparation of a fairness opinion is a complex analytical process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Moelis’ opinion. In arriving at its fairness determination, Moelis considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Rather, Moelis made its fairness determination on the basis of its experience and professional judgment after considering the results of all of its analyses.

No company used in the analyses described above is identical to Cliffs or AK Steel. In addition, such analyses do not purport to be appraisals, nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because the analyses described above (including much of the information used therein) are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, neither Cliffs nor Moelis or any other person assumes responsibility if future results are materially different from those forecast.

Except as described in this summary, Cliffs and the Cliffs board imposed no other instructions or limitations on Moelis with respect to the investigations made or procedures followed by Moelis in rendering its opinion. The exchange ratio was determined through arms’ length negotiations between Cliffs, on the one hand, and AK Steel, on the other, and was approved by the Cliffs board and the AK Steel board. Moelis did not recommend any specific consideration to Cliffs or the Cliffs board, or that any specific amount or type of consideration constituted the only appropriate consideration for the Merger.

Moelis acted as financial advisor to Cliffs in connection with the Merger and will receive a transaction fee of $11,000,000 for its services contingent upon the consummation of the Merger. Moelis also became entitled to receive an additional fee of $3,000,000, which fee became payable upon the delivery of Moelis’ opinion, regardless of the conclusion reached by Moelis therein. In addition, Cliffs agreed to indemnify Moelis for certain liabilities, including liabilities under the federal securities laws, arising out of its engagement.

Moelis’ affiliates, employees, officers and partners may at any time own securities (long or short) of Cliffs, AK Steel or their respective affiliates. Moelis is currently providing investment banking services to Cliffs unrelated to the Merger. Moelis has not received any fees from Cliffs, aside from the fees described above in connection with the Merger, in the two years preceding the date of its opinion. Moelis had not provided investment banking or other services to AK Steel in the three years prior to the date of its opinion. In the future Moelis may provide such services to Cliffs or AK Steel or their affiliates and may receive compensation for such services.

The Cliffs board selected Moelis as its financial advisor in connection with the Merger because Moelis has substantial experience in similar transactions and familiarity with Cliffs. Moelis is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, and valuations for corporate and other purposes.

 

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Recommendation of the AK Steel Board and Reasons for the Merger

At a meeting held on December 2, 2019, the AK Steel board unanimously approved the Merger Agreement and determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of AK Steel and AK Steel stockholders. The AK Steel board unanimously recommends that AK Steel stockholders vote “FOR” the AK Steel Merger proposal.

As discussed in the section above entitled “The Merger—Background of the Merger,” in evaluating the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, the AK Steel board consulted with its financial and legal advisors and AK Steel management. In addition to such discussions, in reaching its decision to approve the Merger Agreement and to recommend that AK Steel stockholders vote to adopt the Merger Agreement, the AK Steel board considered a number of factors, including, but not limited to, the following (which are not necessarily presented in order of their relative importance to the AK Steel board):

 

   

The current and prospective competitive climate in the steel industry in which AK Steel operates, as well as the financial condition of the U.S. and global economy in general and the impact that such industry and macroeconomic trends have had and could continue to have on AK Steel’s results of operations.

 

   

That the Merger would combine AK Steel’s and Cliffs’ complementary businesses to create a premier, vertically integrated producer of value-added iron ore and steel products.

 

   

The belief of the AK Steel board that the combined company’s enhanced scale and diversified revenue mix would result in improved opportunities for growth and cost savings and provide stability through economic cycles as compared to the prospects of AK Steel on a standalone basis.

 

   

The AK Steel board’s knowledge of, and discussions with AK Steel management regarding, AK Steel’s business, operations, financial condition, earnings, strategy and future prospects, including AK Steel’s opportunities to create stockholder value in the future on a standalone basis and the risks inherent in the execution of AK Steel’s strategic plan, including limitations on AK Steel’s ability to make investments and to grow its business due to its relatively high indebtedness and more limited access to liquidity.

 

   

Discussions with AK Steel management and its financial advisor regarding Cliffs’ business, operations, strategy and future prospects, and the AK Steel board’s view of the anticipated synergies, stronger free cash flow, improved credit profile and interest expense savings resulting from the Merger.

 

   

That the Merger would provide AK Steel with a consistent supply of high quality iron ore pellets.

 

   

The implied value of the merger consideration to be received by AK Steel stockholders (which was $3.36 per share of AK Steel common stock, calculated based on the closing price of Cliffs common shares on the NYSE on December 2, 2019, representing a premium of approximately 16% over the closing price of the AK Steel common stock on the same date and a premium of approximately 27% over the 30-trading day volume weighted average trading price of the AK Steel common stock).

 

   

That the exchange ratio of 0.400 of a Cliffs common share for each share of AK Steel common stock is fixed, which affords AK Steel stockholders the opportunity to benefit from any increase in the trading price of the Cliffs common shares between the announcement and completion of the Merger, and that the exchange ratio was the result of extensive negotiation between the parties, including that the proposed exchange ratio had been increased on two occasions and the AK Steel board’s belief that the final exchange ratio represented the best value that AK Steel could obtain from Cliffs.

 

   

The all-stock nature of the merger consideration and that AK Steel stockholders will have the opportunity to participate in the future growth of the combined company following the Merger.

 

   

That AK Steel stockholders will own approximately 32% of the combined company (based on the number of shares of AK Steel common stock and Cliffs common shares outstanding as of

 

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November 26, 2019 on a fully diluted basis and the exchange ratio), allowing current AK Steel stockholders to participate in the future growth of the combined company and fully enjoy the benefits of the Merger through realization of synergies.

 

   

That Cliffs currently pays quarterly cash dividends to its shareholders and that AK Steel stockholders will be entitled to participate in and receive any dividends or distributions paid on the Cliffs common shares with a record date at or after the effective time of the Merger.

 

   

The AK Steel board’s view, in light of the complementary nature of AK Steel’s and Cliffs’ respective businesses, and based on assessments conducted by both AK Steel and Cliffs management, that the Merger could result in the realization of annual cost synergies of $120 million, with the transaction generating substantial cost synergies within 12 months following closing, and that there is significant potential for the ongoing realization of operational synergies that would generate long-term value for Cliffs shareholders, and that AK Steel stockholders will participate in the benefits from these synergies to the combined company.

 

   

The AK Steel board’s consideration, from time to time, with the assistance of AK Steel management and its financial and legal advisors, of various strategic alternatives available to AK Steel, including remaining an independent company, and its belief that the Merger presents a more favorable opportunity for AK Steel stockholders than the potential value that may result from remaining a standalone company or pursuing other potential strategic alternatives.

 

   

The AK Steel board’s view of the financial condition of Cliffs and the AK Steel board’s expectation, based, among other things, on AK Steel’s review of the financing commitments obtained by Cliffs in connection with the Merger, that Cliffs would have the ability to retire and refinance certain of AK Steel’s existing indebtedness.

 

   

The expectation that, following the Merger, Cliffs would have a strong financial and credit profile, which may unlock access to capital that is not available to AK Steel on a standalone basis, and result in lower borrowing costs for the combined company than are available to AK Steel on a standalone basis.

 

   

The potential opportunity for the combined company to increase the productivity and economic viability of certain of AK Steel’s assets, including the potential opportunity to produce pig iron at its Ashland Works facility.

 

   

The fact that, at the effective time of the Merger, two Cliffs directors will resign from the Cliffs board, the size of the Cliffs board will be increased by one member and three members of the current AK Steel board will be added to the Cliffs board, providing oversight of the strategy of the combined company and understanding of the AK Steel business, as well as the information provided by Mr. Goncalves regarding the experience of certain members of Cliffs management in the steel industry and the AK Steel board’s view regarding the ability of Cliffs senior management to successfully oversee the operation of AK Steel’s business.

 

   

The financial analyses reviewed and discussed with the AK Steel board by representatives of Goldman Sachs, as well as the oral opinion of Goldman Sachs rendered on December 2, 2019, which was subsequently confirmed by delivery of a written opinion of Goldman Sachs, dated December 2, 2019, to the AK Steel board to the effect that, as of the date of Goldman Sachs’ written opinion, and based upon and subject to the factors and assumptions set forth in Goldman Sachs’ written opinion, the exchange ratio pursuant to the Merger Agreement was fair, from a financial point of view, to the holders (other than Cliffs and its affiliates) of shares of AK Steel common stock. See the section entitled “The Merger—Opinion of Goldman Sachs, AK Steel’s Financial Advisor” beginning on page [    ]. The full text of the written opinion of Goldman Sachs is attached as Annex C to this joint proxy statement/prospectus.

 

   

The review by the AK Steel board with its legal and financial advisors of the structure of the proposed Merger and the financial and other terms of the Merger Agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the

 

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