Iron ore pellet producer Cleveland-Cliffs (CLF) - Get Cleveland-Cliffs Inc Report on Tuesday said it has reached a deal to buy flat-rolled carbon, stainless steel and electrical products maker AK Steel (AKS) - Get AK Steel Holding Corporation Report for $1.1 billion in stock.
Under terms of the agreement, AK Steel shareholders will receive 0.4 a Cleveland-Cliffs share for each AK Steel share at $3.36 a share, which represents a premium of 16% based on the closing share prices of Cleveland-Cliffs and AK Steel, respectively, as of Monday Dec. 2, and a premium of 27% based on the 30-day volume-weighted average price of AK Steel common shares.
Shares of Cleveland-Cliffs plunged at the open on Tuesday, falling more than 13% to $7.29. Shares of AK Steel, meantime, gained 4.5% to $2.94.
When finalized, Cleveland-Cliffs shareholders will own approximately 68% and AK Steel shareholders will own approximately 32% of the combined company. Cliffs CEO Lourenco Goncalves will lead the combined company, while AK Steel CEO Roger Newport will retire.
"By combining the best-in-class quality of AK Steel's assets and its enviable product mix with Cliffs' debt profile and proven management team, we are creating a premier North American company, self-sufficient in iron ore pellets and geared toward high value-added steel products," Goncalves said in a statement.
The transaction is expected to close in the first half of 2020, subject to approval by shareholders of both companies as well as receipt of regulatory approvals and other typical closing conditions.
As part of the agreement, Cliffs said it has obtained an approximately $2 billion financing commitment from Credit Suisse in connection with a new asset-backed loan and the refinancing of AK Steel's 2023 senior secured notes.
Shares of Cleveland-Cliffs were down 4.88%, or 41 cents a share, at $8 in premarket trading, while shares of AK Steel were up 5.54%, or 16 cents, at $3.05.