3.1500 -0.02 (-0.63%)
After hours: 7:29PM EST
|Bid||3.1600 x 39400|
|Ask||3.1700 x 36900|
|Day's range||3.0700 - 3.1900|
|52-week range||1.6600 - 3.2900|
|Beta (3Y monthly)||3.14|
|PE ratio (TTM)||10.16|
|Earnings date||27 Jan 2020 - 31 Jan 2020|
|Forward dividend & yield||N/A (N/A)|
|1y target est||2.12|
(Bloomberg Opinion) -- An otherwise fairly unremarkable Tuesday morning thankfully delivered one of the more memorable answers on an M&A call. Lourenco Goncalves, CEO of Cleveland-Cliffs Inc., was asked a sensible question about the risks around transfer pricing in the just-announced acquisition of AK Steel Corp., to which he delivered this bracing dose of honesty:It’s our company after we close, so we can do whatever we want at the end of the day.Except, of course, the “our” there includes the investors who own Cliffs. Some of them didn’t really agree with the spirit of Goncalves’s take. By midmorning in New York, Cliffs shares were down more than 12%, all but wiping out the premium AK Steel’s own shareholders were being offered in the all-stock deal. Indeed, the immediate winners here aren’t the shareholders of either company, but rather AK Steel’s bondholders.That question about transfer pricing was aimed at one of the main stated rationales for the deal: namely, that combining Cliffs’ iron-ore pellets business with AK Steel’s furnaces would boost the latter’s margins per ton. But that’s the age-old fallacy of vertical integration: Favorable pricing from one part of the merged business to another may optically boost profitability for one, but that comes at the expense of the other.To be fair, Goncalves went on to say people shouldn’t expect Cliffs to cross-subsidize in that way. Unfortunately, the market’s reaction suggests investors may be focused more on the “we can do whatever we want” bit.With the long-term benefits of vertical integration questionable, this deal looks more like an alloy of defensiveness and opportunism.AK Steel is under pressure on two fronts. First, almost two-thirds of its sales are tied to the automotive industry. That is a great business for any steelmaker — except when U.S. auto sales look set to plateau or decline and major overseas markets such as China are struggling already. Steel prices have dropped sharply from the tariff-induced highs of 2018.Second, the continued shift in market share toward electric-arc furnaces using recycled steel represents a structural problem for traditional producers such as AK Steel. This is also why Cliffs is investing in facilities producing more hot-briquetted iron, which targets arc furnaces. Wen Li, an analyst at CreditSights, points out that AK Steel’s leverage — net debt of 3.7 times adjusted Ebitda at the end of September —remained elevated even when steel pricing was good, and was likely to rise as automotive contracts get reset at lower prices.In buying AK Steel, therefore, Cliffs provides support — including refinancing of near-term debt maturities — to a major customer that accounted for a quarter of its product revenue in 2018. Hence, even as Cliffs’ stock plunged and AK Steel’s battered stock ticked up a little on Tuesday morning, the target’s bondholders were high-fiving:The opportunist aspect of the deal reflects AK Steel’s pricing. Cliffs has a literal moat in the form of its positioning in the Great Lakes region, shielding it from foreign competition. However, it also limits growth prospects; consensus forecasts imply earnings per share will fall almost 30% in 2020 and by 2022 will be merely flat with 2019’s level. Even if AK Steel’s vertical integration is of dubious benefit, it offers the possibility of cutting costs to boost the bottom line. At $120 million a year, the touted savings target equates to just under 40% of AK Steel’s trailing selling, general and administrative expenses, which seems like a reasonable target. Taxed, it would also boost pro-forma net income by 16%, all else equal. With the exchange ratio having halved since the start of 2018, that may have been too tempting for Cliffs to pass up.As it stands, against the notional $800 million or so of present value associated with such potential savings, almost $300 million has been wiped off the value of Cliffs’ stock. It doesn’t help that two commodity producers announced a surprise deal just as we are undergoing yet another trade tantrum. Neither does the questionable vertical-integration story. This will ultimately all come down to how much cost can really be cut. On that front, at least, investors will hope management does whatever it takes.To contact the author of this story: Liam Denning at firstname.lastname@example.orgTo contact the editor responsible for this story: Mark Gongloff at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Cleveland-Cliffs Inc. shares headed for their steepest decline in three months after agreeing to buy AK Steel Holding Corp. for $1.1 billion in the biggest takeover of a U.S. steelmaker since Trump tariffs were imposed.Cliffs shares tumbled 12%, wiping over $271 million from the market value of the top U.S. iron ore miner. The deal is “expensive” because it values AK Steel at 8.5 times next year’s estimated earnings before interest, taxes, depreciation and amortization, higher than its peers, according to David Gagliano, an analyst at BMO Capital Markets.“Unfortunately Wall Street sells first and thinks later,” said Cliffs Chief Executive Officer Lourenco Goncalves, who will lead the combined group, said on a conference call with analysts. “We are going to create a company that will be the envy of the industry here in the U.S.”While the deal enables Cliffs to expand into steelmaking by buying its second-biggest customer, it will also add to the miner’s debt pile and dilute its margins. The iron ore producer has obtained about $2 billion in financing commitment from Credit Suisse in connection with a new asset-backed loan and the refinancing of AK Steel’s 2023 senior secured notes.AK Steel had a total debt of $2.24 billion as of the third quarter. That puts it at 3.81 times the company’s trailing 12-month Ebitda, higher than Cliffs’ 3.55 times.Cliffs has an Ebitda margin of 15%, compared with AK Steel’s 8.1%, according to the companies’ joint presentation to analysts.“We do not foresee a competing bid nor antitrust issues for the proposed CLF-AKS deal, but CLF may have some work ahead to win over shareholders,” Jefferies LLC analysts including Alan Spence said in a note, referring to the companies by their exchange ticker.The Cleveland-based miner agreed to pay 0.4 of its own shares for each AK Steel share, the company said in a statement Tuesday. That ratio implies a consideration of $3.36 per share of AK Steel common stock and represents a 16% premium based on closing prices Monday, it said. Cliffs shareholders will own about 68% of the combined company.The slump in Cliffs’ shares pushed down the value of the offer for AK Steel to $2.94 per share, lower than the steelmaker’s current stock price of $3.03.The deal comes as prices of benchmark steel have shown signs of a recovery after dropping by about a third in the past year on concern over slowing economies. AK Steel’s market value has fallen by half since President Donald Trump announced the tariffs on steel imports in 2018 to protect the domestic industry.In July, Goncalves said that “absurdly low” steel prices were temporary, and that he expected to see a rebound.Cliffs gets about 23% of its revenue from AK Steel, making it the iron ore miner’s second-largest customer, behind ArcelorMittal SA, according to data compiled by Bloomberg.What Bloomberg Intelligence Says“CEO Lourenco Goncalves’ track record of successfully executing turnarounds at Cliffs and Metals USA bodes well for the combination, though it’s possible the deal was done more to lock up a home for Cliffs’ future pellet offtake, while providing a lifeline to AK Steel.”\-- BI analyst Richard Bourke\-- Click here for the researchCliffs plunged 12% to $7.37 at 10:42 a.m. in New York. A close at that level would mark the steepest decline in three months. AK Steel climbed 4.6% to $3.0218, making the stock the biggest gainer among the 15 members of a S&P gauge of steelmakers.While Tuesday’s rally boosted the steelmaker’s market value to $956 million, it’s still down 46% since the tariffs were announced in early 2018.The transaction is expected to close in the first half of 2020.The cost to protect against default on AK Steel’s five-year senior debt plunged, according to data provider CMA.Moelis & Co. and Credit Suisse Group AG are financial advisers to Cliffs and Jones Day is serving as legal counsel. Goldman Sachs Group Inc. is advising AK Steel and Weil, Gotshal & Manges LLP is legal counsel.\--With assistance from Reg Gale, Liezel Hill, Sebastian Boyd and Brian Eckhouse.To contact the reporters on this story: Joe Deaux in New York at firstname.lastname@example.org;Yvonne Yue Li in New York at email@example.comTo contact the editors responsible for this story: Luzi Ann Javier at firstname.lastname@example.org, Steven FrankFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Despite the benefits of steel tariffs, shares of most U.S. steel companies remain subdued this year as weak demand and prices hurt their earnings.
Cleveland-Cliffs Inc. (CLF) and AK Steel Holding Corporation (AKS) are pleased to announce that they have entered into a definitive merger agreement pursuant to which Cliffs will acquire all of the issued and outstanding shares of AK Steel common stock. Lourenco Goncalves, Chairman of the Board, President and CEO of Cliffs, will lead the expanded organization. Under the terms of the merger agreement, AK Steel shareholders will receive 0.40 shares of Cliffs common stock for each outstanding share of AK Steel common stock they own.
Wall Street stepped back from last week's record highs on Monday, with weak U.S. manufacturing data and fresh trade worries keeping buyers on the sidelines. All three major U.S. stock averages began the last month of the year in the red as investors returned from the long holiday weekend. A report from the Institute for Supply Management (ISM) showed U.S. manufacturing activity contracted in November for the fourth consecutive month, stoking concerns that the longest period of economic expansion in U.S. history could be losing steam.
Wall Street retreated on Monday as disappointing U.S. economic data and fresh trade worries dampened investor risk appetite. The S&P 500 posted 16 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 62 new highs and 33 new lows.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. President Donald Trump is reinstating tariffs on steel and aluminum from Argentina and Brazil, nations he criticized for cheapening their currencies to the detriment of U.S. farmers, and he again called on the Federal Reserve to loosen monetary policy.Linking his trade agenda with his Fed criticism in an early morning tweet, he said the two South American countries “have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”The president’s action amounts to retaliation against two nations that have become alternative suppliers of soybeans and other agricultural products to China, grabbing market share away from the U.S. Rural voters, including farmers, are a key constituency for Trump as he heads into the 2020 presidential elections.While the steel tariffs could crimp trade, the Latin American countries gain much more shipping crops to Chinese buyers. In the first 10 months of the year, Brazil has shipped $25.5 billion in farm products including soybeans and pork to China. That’s more than 10 times the value of steel and iron product sold to the U.S.Brazil’s President Jair Bolsonaro said he would talk to his economy minister before reacting to Trump’s comments on the Brazilian real and the imposition of steel tariffs. “If needed, I can also talk to Trump, I have an open channel with him,” he added as he left the presidential palace.In the case of Argentina, soybean shipments to China totaled $2.4 billion in 2017, more than triple the value of the South American nation’s aluminum and iron pipe exports to the U.S. As the trade war between Beijing and Washington escalated, China boosted imports of the oilseed to $2.5 billion in the first 10 months of 2019, Chinese customs data show.In a second Twitter post, Trump signaled that he wants the U.S. central bank to do something about suppressed currencies.Argentina’s peso plunged earlier this year on election results putting a left-wing candidate in the presidency. Brazil has intervened multiple times in the past month to support its devaluing real.Trump has long grumbled about the dollar’s strength and urged the Fed to abandon decades of precedent and act to weaken the greenback. The U.S. government’s dollar policy has traditionally been directed by the Treasury Department. That has prompted fears that the U.S. could lead the world into an era of weaponized monetary policy.While such a currency war hasn’t happened yet, Monday’s move marks the first time Trump has linked the imposition of tariffs explicitly to Fed action tied to currency movements. As such, it signifies a potential new phase in his trade wars in which foreign-exchange markets are the battleground.Stocks, Forex MovesThe U.S. has imported about 3.8 million metric tons of steel from Brazil so far this year, most of which are slab, according to U.S. Census Bureau data. The South American nation’s steel accounts for about 3.5% of the 110 million tons consumed in the U.S. a year.The Brazilian real strengthened 0.4% to 4.2185 per dollar at 11:23 a.m. in New York.The reinstatement of tariffs will boost U.S. steel prices, benefiting domestic producers.AK Steel Holding Corp. rose 6.9% in New York. U.S. Steel Corp. was up 3.8%, and Steel Dynamics Inc. gained 1.4%.The American depositary receipts of Brazilian steelmaker Gerdau SA, which runs plants in the U.S., rose 1.4%. Shares of Usinas Siderurgicas de Minas Gerais SA rose 0.5% in Brazil.Exports to the U.S. by Usuminas, as the Belo Horizonte-based steelmaker is known, aren’t significant enough to have an impact on the company’s financial results, Pedro Galdi, an analyst at Mirae Asset Wealth Management said by phone.The Brazil Steel Institute, a trade group that represents domestic producers including Gerdau and Usiminas, said the tariffs could boomerang on American steelmakers because they need “semi-finished products exported by Brazil in order to operate” their mills.The tariffs are in “retaliation against Brazil, which is not consistent with a relation of partnership between the two countries,” the industry group said in a note.In March 2018, Trump authorized a 25% tariff on steel imports and a 10% duty on aluminum -- import barriers that heralded the start of his administration’s hawkish push on trade -- after a government report found that foreign shipments of the metals imperil national-security interests.He then directed U.S. Trade Representative Robert Lighthizer to negotiate with countries seeking to turn their temporary tariff exemptions into permanent ones.In August last year, he gave South Korea, Brazil and Argentina targeted relief from quotas imposed on inbound steel shipments to protect U.S. producers. The move allowed buyers to request exemptions for imports from key suppliers.(Adds Brazil industry group’s comments beginning 17th paragraph.)\--With assistance from Shawn Donnan, Courtney Dentch, Mario Sergio Lima, Walter Brandimarte, Jonathan Gilbert, James Attwood, Pratish Narayanan and Sabrina Valle.To contact the reporters on this story: Brendan Murray in London at email@example.com;Joe Deaux in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Simon Kennedy at email@example.com, Luzi Ann Javier, Joe RichterFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Investing.com - Steel and mining companies were higher in midday trade on Monday after U.S. President Donald Trump said he was re-implementing steel tariffs on imports from Brazil and Argentina.
AK Steel (AKS) transfers aggregate pension obligations of $1.1 billion to highly-rated annuity providers for around 20,000 retirees since 2016.
While demand weakness is likely to continue, it remains to be seen if the recent recovery in steel prices is short-lived or more sustainable heading into 2020.
In 2016 Roger Newport was appointed CEO of AK Steel Holding Corporation (NYSE:AKS). This report will, first, examine...
CLF and U.S. Steel Corporation are looking at electric arc furnaces, whose variable cost dynamics make them suitable for the cyclical steel industry.
Citi is bearish on iron ore and steel prices, expecting bad news for Cleveland-Cliffs (CLF) and US steel companies. This year, CLF stock is trading almost flat.
U.S. Steel stock (X) is trading with sharp gains today after the company released its Q3 earnings. Here's why the market is so optimistic about X.
AK Steel (AKS) reported its third-quarter earnings on Wednesday in after-market trading. The stock fell sharply during trading on Thursday.
Reduced shipments to the distributors and converters market along with lower carbon spot market prices hurt AK Steel's (AKS) sales in third-quarter 2019.
AK Steel (AKS) stock was trading deep in the red in after-market trade on Wednesday. Based on the YTD price action, the stock is outperforming its peers.
AK Steel (AKS) delivered earnings and revenue surprises of -75.00% and -7.23%, respectively, for the quarter ended September 2019. Do the numbers hold clues to what lies ahead for the stock?
AK Steel’s Q3 earnings are expected today after the markets close. The company will hold its earnings call on Thursday. The stock might be volatile.
Things could turn around for the US steel sector, with mills pushing for price hikes. Earnings results this week could also surprise positively.
AK Steel (AKS) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.