Cleveland-Cliffs announced it has reached a deal to buy the U.S. assets of ArcelorMittal, the world’s largest steelmaker, for about $1.4 billion. 

The deal will make Ohio-based Cleveland-Cliffs the largest flat-rolled steel producer in North America and the largest iron ore pellet producer in North America, with 28 million long tons of annual capacity, the company said. It is making the acquisition on a cash-free and debt-free basis with common stock, non-voting preferred stock, and cash. 

The enterprise value of the transaction is approximately $3.3 billion. 

“Steelmaking is a business where production volume, operational diversification, dilution of fixed costs, and technical expertise matter above all else, and this transaction achieves all of these,” Lourenco Goncalves, the chief executive officer of Cleveland-Cliffs, said. “ArcelorMittal is a worldclass organization that we have long admired as our customer and our partner, and we know for a fact that they have taken good care of their U.S. assets.” 

Luxembourg-based ArcelorMittal is expected to use proceeds from the sale to buy back shares and pay down debt. Its stock price was up 11% on Monday morningthough this year it has been down sharply. 

“Consolidation has been needed in steel for a long time,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets. “Low industry capacity utilization weighs on margins, and low interest rates mean nothing goes to the wall to take out capacity.” 

Cleveland-Cliffs said the assets it is buying include steelmaking facilities, finishing facilities, iron ore mining and pelletizing operations, and coal and coke making operations. It said it expects to see $150 million in annual cost savings 

In March, the company bought AK Steel in a deal valued at $3 billion, after raising $725 million in a high-yield-bond offering.  

The deal is expected to close in the fourth quarter of 2020. 

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