Cleveland-Cliffs Inc. has agreed to pay $1.4 billion in stock and cash for ArcelorMittal USA’s 19 steel and iron-mining facilities, including plants in Conshohocken and Coatesville, in a deal that puts much of the U.S. steel industry back under U.S. control.
The sale will turn U.S. steel mills collected since 2005 by London-based billionaire Lakshmi Mittal and his European companies over to Ohio-based Cleveland-Cliffs. With other newly-acquired operations, that makes Cleveland-Cliffs North America’s largest maker of the flat-rolled steel used in vehicles, buildings and appliances, with 25,000 employees, $17 billion in yearly sales, and a large debt.
“Our success will not come from lower prices. It will come from quality, the ability to deliver on time,” and the use of “green” technologies such as substituting cleaner-burning natural gas from the coke fuel made from smoky coal, said CEO Lourenco Goncalves an energetic immigrant who has been compared to radical Tesla founder Elon Musk.
This deal to return so many steel mills to U.S. ownership comes just a day before the first Trump-Biden presidential debate is scheduled for the buyer’s hometown of Cleveland, after a campaign in which the candidates have argued the causes and cures of the long-term decline of U.S. steelmaking and other heavy industries, said J. Chris Rooney, president of Vanness Co., a Jacksonsonville, Fl. financial consulting firm.
He said ArcelorMittal, which owns foreign as well as U.S. mills, failed to take broad advantage of Trump administration steel import restrictions. For example, instead of producing more high-quality vehicle steel, ArcelorMittal mills in Pennsylvania continued producing lower-quality, lower-value cheap steel for rebar and other basic construction uses.
That had forced U.S. trade representative Peter Navarro to reverse the administration’s protectionist policy and grant waivers for imports to supply U.S. factories what they couldn’t get here at home.
Locally, the sale includes the historic Lukens steelworks on the Brandywine in Coatesville, which employs 638, and the old Alan Wood Steel plant on the Schuylkill in Conshohocken, which employs 126. The Coatesville plant produces steel from scrap in an electric arc furnace and can make up to 900,000 tons of raw steel annually. Working together, the Coatesville and Conshohocken plants make some of the “widest, thickest and heaviest steel plates in the industry” for use in high rise buildings and ship construction, the company said.
In a conference call Monday with investors and analysts, Goncalves noted Cleveland-Cliffs had been a longtime iron supplier to ArcelorMittal’s mills and knew the company well, and looks forward to taking it over with its newly-acquired operating talent from AK Steel. “This takes us where we need to be in this competitive and increasingly quality-focused marketplace,” he said, adding that with more plants his company can borrow more money to expand or update as needed.
In the call, Goncalves was very positive about the unions, noting that besides steelworkers, the plants also have machinists and UAW members, whom he described as cooperative and possessing the skills to improve products and boost sales. But the CEO also said he hoped to cut total expenses by $50 million in 2021 and another $100 million by the end of 2022, and will review each newly-acquired facility before deciding whether to invest.
The energetic, Brazil-born Goncalves, who has been compared to Tesla founder Elon Musk as another brash, big-ideas maverick, will now have the mills to turn Cleveland-Cliffs’ high-grade iron ore into higher-end products for U.S. industry — especially if the next administration in Washington makes expanding steel production a priority, for example by easing environmental rules, Rooney concluded.
The deal caps a rapid expansion by Cleveland-Cliffs, which was best known as the nation’s oldest iron ore-mining company before its $1.1 billion all-stock takeover last March of another big, integrated steelmaker, Cincinnati-based AK Steel, and its mills, including one in Butler, Pa. .
It also comes amid a slump in industrial sales that has made companies cheaper to buy — and a change in technology in which Cleveland-Cliffs is making steel by burning cheap, cleaner U.S. natural gas as a replacement for smoky, coal-based coke fuel, in a process called Hot Briquette Iron (HBI).
Officials of the Pittsburgh-based United Steelworkers union, some of whose local leaders had protested layoffs and a lack of investment at the Philadelphia-area plants under ArcelorMittal in recent years, had no immediate comment on the deal.
ArcelorMittal, controlled by members of India’s Mittal family, had previously consolidated plants built generations ago by Bethlehem Steel, Inland Steel and other U.S. steelmakers into one company, after the closings of older works at Bethlehem, Pa. and Sparrows Point near Baltimore. It also consolidated work at more modern complexes including Burns Harbor, on Lake Michigan in northwest Indiana near Chicago.
In each of the past two years, ArcelorMittal U.S. sales topped $10 billion, with around $700 million in EBIDTA, or profits not counting financial costs, according to the buyer.
Competitors include Pittsburgh-based U.S. Steel, which runs a galvanizing mill in Bucks County and large steelmaking complexes in western Pennsylvania, Illinois, Indiana, Michigan and Slovakia, plus iron ore mines in Minnesota, among other facilities.
Besides the large, integrated companies such as Cleveland-Cliffs and U.S. Steel, the steel industry also includes specialized processors, such as Philadelphia-based Carpenter Technology. Carpenter employed around 5,100 making steel alloys for aerospace use and other premium products at its nonunion facilities in the Reading area and elsewhere before announcing in June it would cut 20 percent of its production workforce due to a drop in orders amid the coronavirus pandemic shutdowns.
Cleveland-Cliffs is acquiring ArcelorMittal without taking on any additional financial debt — other than the pension obligations .
Goncalves said the larger company would be more efficient and flexible. “We look forward to welcoming the ArcelorMittal USA team into our organization,” he added.
The deal is supposed to close by the end of the year, pending regulatory approval.
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