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Cleveland-Cliffs & AK Steel Shareholders Approve Merger Deal

Zacks Equity Research

Cleveland-Cliffs Inc. CLF and AK Steel Holding Corporation AKS recently announced that the shareholders of Cleveland-Cliffs and AK Steel’s stockholders voted in favor of all the resolutions required for completing the earlier announced acquisition of AK Steel at their respective special shareholder/stockholder meetings.

Per the pending deal, Cleveland-Cliffs will purchase AK Steel under the Agreement and Plan of Merger (the "Merger Agreement"). The companies have agreed to enable the merger of a fully-owned Cleveland-Cliffs subsidiary with and into AK Steel. Post the merger, AK Steel will continue operations as a wholly-owned subsidiary of Cleveland-Cliffs.

The results of the shareholder/stockholder vote are based on preliminary tabulations provided by the independent elections inspector. Notably, each of Cleveland-Cliffs and AK Steel will report the final results of the vote from its special shareholder/stockholder meeting on  Form 8-K to be filed with the U.S. Securities and Exchange Commission after the election inspector of each company has certified.

Reportedly, the deal is currently scheduled to close on Mar 13, 2020.

Background of the Deal

In December 2019, Cleveland-Cliffs announced that it has entered into a definitive merger agreement 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 placed to deliver high-value iron ore and steel solutions, mainly throughout North America.

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

Cleveland-Cliffs’ shares have plunged 51.7% in the past year compared with the industry’s 25.9% decline.

The company expects average iron ore prices, steel prices and pellet premiums to be $90 per metric ton, $650 per short ton and $50 per metric ton, respectively, for 2020. Based on these assumptions, it expects to generate net income of $300-$325 million and adjusted EBITDA of $550-$575 million for 2020 on a standalone basis.

Cleveland-Cliffs Inc. Price and Consensus


Cleveland-Cliffs Inc. Price and Consensus

Cleveland-Cliffs Inc. price-consensus-chart | Cleveland-Cliffs Inc. Quote


Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the basic materials space are Daqo New Energy Corp. DQ, and Barrick Gold Corporation GOLD.

Daqo New Energy has a projected earnings growth rate of 353.7% for 2020. The company’s shares have rallied 66% in a year. It currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold currently has a Zacks Rank #2 (Buy) and a projected earnings growth rate of 49% for 2020. The company’s shares have rallied 50.2% in a year.

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