Cleveland-Cliffs Begins Exchange Offers For AK Steel Buyout

Cleveland-Cliffs Inc. (NYSE:CLF) announced that it has started offers to exchange any and all outstanding 7% senior notes due 2027 and 6.375% senior notes due 2025 issued by AK Steel Holding Corporation’s fully-owned subsidiary — AK Steel Corporation. The exchange involves the same total principal amount of new notes to be issued by Cleveland-Cliffs. The move is in relation to the anticipated acquisition of AK Steel by Cleveland-Cliffs.

AK Steel is soliciting consents in conjunction with the afore-mentioned exchange offers for adopting some proposed amendments to each of the indentures governing the existing senior notes of AK Steel. This will eliminate some of the covenants, events of default and restrictive provisions from such indentures.

Moreover, the companies are making the exchange offers and consent solicitations pursuant to the terms of and subject to the conditions set forth in the offering memorandum and consent solicitation statement dated Jan 14, 2020.

For each $1,000 principal amount of earlier mentioned existing AK Steel senior notes, validly tendered on Feb 12, 2020 (referred to as the "Expiration Date") and not validly withdrawn, eligible holders of these notes will receive the applicable exchange consideration.

Cleveland-Cliffs and AK Steel expects the settlement date to be two business days after the Expiration Date. Moreover, the parties expect that the Expiration Date may be extended to coincide with the date of the consummation of the merger.

The exchange offers and consent solicitations are conditional upon the consummation of the pending acquisition of AK Steel by Cleveland-Cliffs pursuant to the Agreement and Plan of Merger dated Dec 2, 2019. Per the agreement, Cleveland-Cliffs’ direct fully-owned subsidiary — Pepper Merger Sub Inc (referred to as ‘Merger Sub’) — will merge with and into AK Steel. Following this, AK Steel will survive the merger as a fully-owned subsidiary of Cleveland-Cliffs.

Cleveland-Cliffs’ shares have lost 9.3% in the past year against the industry’s 8.3% rise.

In December 2019, Cleveland-Cliffs announced that it has entered into a definitive merger agreement with AK Steel to acquire all of the issued and outstanding shares of AK Steel common stock.

The deal combines North America’s largest iron ore pellets producer and a leading producer of innovative flat-rolled carbon, stainless and electrical steel products to form a vertically-integrated producer of value-added iron ore as well as steel products. The combined entity will be well positioned to offer high-value iron ore and steel solutions, mainly across North America.

Moreover, the deal will enable Cleveland-Cliffs to become a vertically-integrated steel company that is expected to boost profitability. The combined company will be well-positioned to cater to the blast furnace and electric arc furnace segments.

Zacks Rank & Key Picks

Cleveland-Cliffs currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Daqo New Energy Corp (NYSE:DQ) , Pan American Silver Corp (NASDAQ:PAAS) and Commercial Metals Company (NYSE:CMC) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has projected earnings growth rate of 315.4% for 2020. The company’s shares have skyrocketed 117.6% over a year.

Pan American Silver has an estimated earnings growth rate of 46.3% for 2020. Its shares have returned 54.4% in the past year.

Commercial Metals has an expected earnings growth rate of 17.3% for fiscal 2020. The company’s shares have rallied 39.4% in the past year.

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