Cleveland-Cliffs Inc. CLF has announced a definitive agreement to acquire Stelco Holdings Inc., reinforcing CLF's dedication to integrated steel production in North America. This acquisition will bring 1,800 United Steelworkers ("USW") union employees into CLF's workforce.
Under the deal, Stelco shareholders will receive C$60 in cash and 0.454 shares of Cleveland-Cliffscommon stock per Stelco common share (or C$10 per share as of Jul 12, 2024), totaling C$70 per Stelco share.
The acquisition values Stelco at approximately $2.5 billion (C$3.4 billion), with an acquisition multiple of 4.8x 3/31/24 LTM adjusted EBITDA with synergies. The company expects annual cost savings of about $120 million without impacting union jobs. The deal is projected to be immediately accretive to CLF’s EPS for 2024 and 2025 and result in a pro forma net leverage of 2.4x 3/31/2024 LTM adjusted EBITDA. Post-transaction completion, Cleveland-Cliffs’shareholders will own approximately 95% of the combined company, while Stelco shareholders will own about 5% on a fully diluted basis.
Stelco operates two facilities in Ontario — Lake Erie Works and Hamilton Works — shipping around 2.6 million net tons of flat-rolled steel annually. The acquisition will enhance Cleveland-Cliffs’ steelmaking capabilities, doubling its exposure to the flat-rolled spot market and leveraging cost advantages in raw materials, energy, healthcare and currency. Stelco's integration will diversify CLF’s customer base across construction and industrial sectors, generating synergies in procurement, overhead and public company-related expenses.
Stelco will function as a wholly-owned subsidiary, retaining its name and legacy. Cleveland-Cliffs commended Stelco's transformation and emphasized the deal's alignment with national interests and workforce significance, highlighting the cost efficiency and cultural compatibility between the companies. The acquisition is expected to provide substantial benefits for Canada and local communities.
Both CLF's and Stelco's Boards have unanimously approved the transaction. A special committee of Stelco directors reviewed and recommended the deal. The transaction is expected to close in fourth-quarter 2024, pending Stelco shareholder approval, regulatory clearances and other customary conditions.
Shares of CLF are down 3.6% in the past year compared with a 0.2% rise of its industry.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
Cleveland-Cliffs currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Basic Materials space are Carpenter Technology Corporation CRS, Eldorado Gold Corporation EGO and Kinross Gold Corporation KGC. Carpenter Technology, Eldorado Gold and Kinross sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CRS’s current-year earnings is pegged at $4.35, indicating a year-over-year rise of 282%. CRS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, the average earnings surprise being 15.1%. The company’s shares have soared 108.9% in the past year.
The Zacks Consensus Estimate for EGO’s current-year earnings is pegged at $1.09, indicating a year-over-year rise of 91.2%. EGO’s earnings estimates have increased 10% in the past 60 days. EGO beat the consensus estimate in the last four quarters, with the average earnings surprise being 430.7%. The stock has rallied 49.1% in the past year.
The Zacks Consensus Estimate for Kinross's current-year earnings is pegged at 52 cents, indicating a rise of 18.2% from the year-ago levels. KGC beat the consensus in the last four quarters, the average earnings surprise being 46%. The stock has surged nearly 79.5% in the past year.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
See This Stock Now for Free >>Cleveland-Cliffs Inc. (CLF) : Free Stock Analysis Report
Kinross Gold Corporation (KGC) : Free Stock Analysis Report
Carpenter Technology Corporation (CRS) : Free Stock Analysis Report
Eldorado Gold Corporation (EGO) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
