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Wednesday, December 4, 2019

Cleveland-Cliffs Inc. to Acquire Middletown's AK Steel in Billion Dollar Merger

Posted By on Wed, Dec 4, 2019 at 10:49 AM

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AK Steel, one of Southwest Ohio's largest employers, will likely be acquired by a Cleveland company known for ore production, officials with Cleveland-Cliffs Inc. announced today.

Cleveland Cliffs, the nation's largest producer of iron ore pellets, is seeking to acquire the local company in a deal believed to be worth roughly $3 billion.

AK Steel, founded in Middletown in 1899 as the American Rolling Mill Company, still maintains much of its production at a large facility in the city. Its corporate offices are in nearby West Chester. Those offices and a research and innovation center AK runs in Middletown will remain open following the merger, Cliffs officials say.

AK employs 2,400 locally and reported $6.8 billion in revenue last year. It is a leading producer of stainless and electrical steel, as well as flat-rolled carbon steel used in everything from HVAC systems to automotive applications.

"We are excited to be able to deliver real value to the shareholders of both Cliffs and AK Steel through a value enhancing and leverage-neutral transaction," Cliffs CEO Lourenco Goncalves said in a statement today. "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."

As part of the deal, Cliffs will assume AK's $2.1 billion in debt. A news release from the company didn't spell out potential employment changes but did suggest Cliffs will make roughly $120 million in cost cuts mostly by eliminating corporate redundancies and achieving greater supply chain efficiencies.

AK Steel's shareholders will receive .4 shares of Cliffs for each AK Steel share they own, and AK shareholders will end up with 32 percent of the shares of the company compared to the 68 percent that will be held by Cliffs shareholders.

As part of the merger, AK Steel CEO Roger Newport will retire, with Goncalves heading the combined companies.

"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 said in a statement. "Our shareholders will benefit from exposure to a larger, more diversified company that is better positioned to capitalize on growth opportunities."

The boards of both AK Steel and Cliffs have approved the deal. Shareholders and federal regulators must also give the green light before the merger is final. Should they do so, the deal is expected to close by summer next year.

Not everyone is sold on the deal. Shareholder rights law firm Johnston Fistel, LLP said today in a news release that it is investigating the proposal to ascertain if AK's board did due diligence on alternatives to letting the company be acquired by Cliffs and whether they secured the best price for AK's shares under Cliffs' plan to purchase it.

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