Cleveland-Cliffs To Buy AK Steel For $1.1 Billion
Mining company Cleveland-Cliffs will buy West Chester, Ohio-based steelmaker AK Steel in a deal valued at $1.1 billion, the companies announced Tuesday in a news release.
The merger will combine Cliffs’ iron ore operations with AK Steel’s manufacturing business, which largely supplies the automotive industry. Cliffs CEO Lourenco Goncalves will lead the company, according to the release, and AK Steel CEO Roger Newport plans to retire.
The deal could lower the raw material costs that go into AK Steel’s products, giving the combined company more stability and competitiveness, Longbow Research mining and metals analyst Chris Olin told ideastream.
“AK Steel historically has been in a difficult position,” he said, “because it is one of the few steel producers in North America, if not the world, that does not have its own access to iron ore.”
One possible drawback of the deal, according to Olin: Demand from the automotive industry may soon peak, and carmakers could seek to pay less for steel products next year.
The billion-dollar price tag on the acquisition was cheap for Cleveland-Cliffs, Olin said, but he said that figure might not tell the whole story.
“The purchase price paid by Cleveland-Cliffs is higher than it looks on the surface because AK Steel is holding an underfunded pension,” Olin said. “And when you tie the pension plus the purchase price, the deal’s abnormally high versus what we’ve seen in the industry in the past couple of years.”
The deal is expected to close in the first half of 2020.
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