AK Steel sold
Cleveland-Cliffs, the country's largest producer of iron ore pellets, will be the new owner of AK Steel.
The merger, which is expected to close in the first half of 2020, was announced Tuesday morning by Cleveland-Cliffs.
The Cleveland-area company will acquire $1.1 billion in issued and outstanding shares of AK Steel stock.
AK Steel's Butler plant employs about 1,400 hourly and salaried workers and has 1,469 retirees and 562 surviving spouses.
A news release said the new company will produce “high-value iron ore and steel solutions to customers primarily across North America.”
AK Steel will become a subsidiary of Cleveland-Cliffs and will retain its branding and corporate identity, the news release said.Under the terms of the merger agreement, AK shareholders will receive .4 shares of Cliffs stock for each outstanding share of AK stock they own.That means Cliffs shareholders will own about 68 percent and AK shareholders 32 percent of the combined company.By the closing of the Dow Jones on Tuesday, AK ended at an increase of 4.33 percent, or $3.01 per share. Cleveland-Cliffs lost 10.75 percent, ending the day at $7.51.
The CEO of AK Steel, Roger K. Newport, will retire upon the merger closing. Three of AK's board directors will join the Cliffs board, and two Cliffs board members will step down, bringing the Cliffs board to 12 members.Cliffs will continue its operations from the Cleveland headquarters while maintaining “a significant presence at AK Steel's current offices in West Chester, Ohio, along with its Research and Innovation Center in Middletown, Ohio.”The CEOs of both companies said the merger will allow the manufacture of products each could not have produced separately.“We believe this transaction is a compelling opportunity for AK Steel shareholders to participate in the substantial upside potential of what will be a premier vertically integrated producer of value-added iron ore and steel products with significant scale and diversification,” Newport stated in the news release. “With AK Steel's 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will facilitate a smooth integration process.”Lourenco Goncalves, president and CEO of Cleveland-Cliffs, will continue to lead the company after the merger is complete.
Goncalves said the merger will likely:- Create a presence across the entire manufacturing process, from mining to pelletizing to the development and production of finished, high-value steel products. Goncalves expects more consistent, predictable performance in the market as a result.- Generate about $120 million in the merged company's first year, primarily through “consolidating corporate functions, reducing duplicative overhead costs and procurement and energy savings as well as operational and supply chain efficiencies.”- Create a larger and more diversified base of customers- Ensure potential growth into the pig iron industry in plants with blast furnaces.According to the presentation given to stockholders, the merger could save the 700-acre AK Steel plant in Ashland, Ky., which is scheduled to close this month.Cliffs officials said the plant could be used as a pig iron supplier once the merger is complete.The presentation said the move would eliminate $60 million in closure costs at the Ashland plant.
Wendy Bennett, president of Bennett Associates Wealth Management in Butler, said Cliffs appears to be a financially strong company.“As a shareholder, I don't think this is a negative,” she said.But Bennett said it is too soon to tell how AK employees will react to the merger. She said it appears most of the cost-saving measures will be made among management at the new company.Regarding any fear of layoffs among rank-and-file employees, Bennett said it's beneficial that Cliffs is an iron ore company and not a direct competitor of AK Steel.She attributes the significant decrease in Cliffs' stocks after the announcement in part to a survey being taken among AK Steel shareholders asking whether AK should have shopped around for a better deal before signing with Cliffs.That survey might make Cliffs shareholders nervous about another potential buyer coming in and scooping up AK Steel before the merger is finalized, Bennett said.She also is concerned about how employees will react to the merger.“It's still early on,” she said. “Hopefully, we have a strong corporate entity taking over that will be a positive change and the employees will feel good about it.”
Regarding the impact on employees and retirees at AK's Butler Works, Lisa Jester, corporate manager of communications and public relations at AK headquarters in West Chester, said the complementary nature of the merger means large-scale employee changes are not expected.“We do not anticipate significant head count reductions ... and we do not anticipate facility closures as part of the expected synergies,” Jester said. “This transaction is focused on growth.”She said consolidation of overlapping corporate functions will be broader once the merger is complete.Jester said active employees and retirees' pension benefits will not be affected by the merger, and that the union contract at the Butler Works will remain in place.She said the Cleveland-Cliffs' hourly employees are represented by United Steelworkers, but did not say what impact that would have on Butler employees, who are represented by the United Auto Workers union.Jim Panei, president of United Auto Workers local 3303, which represents AK employees, said he has no comment at this time on the merger.
