Cleveland company acquiring AK Steel: What does it mean?

Published: Tuesday, December 03, 2019 @ 2:45 PM

Opening ceremony for AK Steel Research and Innovation Center in Middletown

A merger agreement announced today that would see Cleveland-Cliffs acquire AK Steel for $1.1 billion is raising questions for those just learning about the deal.

Here are answers to some of those questions:

1. Why does Cleveland-Cliffs want AK Steel?

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Cliffs, North America’s largest producer of iron ore pellets, will get access to AK Steel, a leading producer of flat-rolled carbon, stainless and electrical steel products.

The companies said Tuesday that they are creating a “vertically integrated business,” a combined company that is expected to benefit from a larger and more diversified base of customers, with less emphasis on commodity-linked contracts.

FIRST REPORT: Cleveland-Cliffs to acquire AK Steel for $1.1B

2: What does it mean for AK Steel’s headquarters in West Chester 

Cleveland-Cliffs will maintain its headquarters in Cleveland while keeping a “significant presence” at AK Steel’s current offices in West Chester.

3. What happens to the Research & Innovation Center in Middletown?

The companies said that the Research & Innovation Center in Middletown would remain open.

4, When is the deal expected to be finalized?

The transaction is expected to close in the first half of 2020, subject to approval by the shareholders of both companies, regulatory approvals and other conditions.

MORE: AK Steel employee pension changes: 5 things to know

5. Were any layoffs or plant closings announced?

No. The companies’ leaders discussed $120 million in cost cuts, or “operational synergies,” coming in the merger within the first year after closing. Those would stem “primarily from consolidating corporate functions, reducing duplicative overhead costs, and procurement and energy cost savings, as well as operational and supply chain efficiencies.”

6. Will the deal affect any of AK Steel’s corporate leadership?

Yes. Roger Newport will be retiring as CEO and a director of AK Steel. We’ve reached out to both companies to find out if any other AK Steel executives will do the same.

Three existing members of AK Steel’s Board of Directors will join the Cliffs board, and two existing Cliffs board members will step down, bringing the Cliffs board to 12 members in total.

MORE: New AK Steel program part of growing trend for industrial unions, employers

7. What does this acquisition mean for shareholders of both companies?

AK Steel will become a direct, wholly-owned subsidiary of Cliffs and will retain its branding and corporate identity. Cliffs will continue to be listed on the NYSE. AK Steel stockholders will receive 0.40 shares of Cliffs stock for each AK Steel share they own. Cliffs shareholders will own approximately 68 percent of the combined company and AK Steel shareholders will own about 32 percent.

8. Could this have any immediate positive effect for AK Steel?

Possibly. AK Steel announced earlier this year it would close its largely idled Ashland Works facility in Kentucky by the end of 2019, which was set to affect more than 230 employees. Now that idled blast furnace may re-start for a potential start-up of pig iron manufacturing.

Such a move would eliminate $60 million of closure-related costs and create more opportunities for pellet demand and more metallics products without significant additional capital expenditures, according to Cleveland-Cliffs.