“They are cornerstones of the American steel industry,” he said.
Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the combined company provide flexibility to pursue additional growth opportunities, he said.
“For Cliffs, we expect to realize immediate growth and a long-desired objective of a more diverse customer base, as well as more predictable cash flow generation due to the contracted nature of AK Steel’s sales of high-end automotive steel,” Goncalves said. “Our track record of providing high-grade iron ore combined with AK Steel’s recognized ability to produce the highest quality steel grades creates a highly complementary and compelling business model.”
AK Steel is the third-largest private employer in Butler County, with 2,421 employees, according to David Fehr, development director for Butler County. The first and second larger private employers are Cincinnati Financial Corporation and GE Aviation in West Chester.
Following completion of the transaction, with Goncalves leading the expanded organization, Roger Newport will retire as CEO and a director of AK Steel. 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
“Together, we expect to be able to take advantage of growth opportunities faster and more fully than either company could on its own,” he said. “With AK Steel’s 120-year heritage, which began in Ohio, and expertise in steelmaking, AK Steel and Cliffs make an excellent combination, which we expect will facilitate a smooth integration process.”
Goncalves said one of the opportunities is possible future use of AK Steel’s blast furnace in Ashland, Kentucky, to produce merchant pig iron, something he said was “an opportunity neither company could pursue on a standalone basis.”
AK Steel announced earlier this year it would close its Ashland Works facility by the end of the year, affecting 230 employees.
MORE: AK Steel to shutter largely idled Kentucky facility by end of 2019
Breathing new life into that facility 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 Cliffs.
Cliffs said $120 million in cost cuts would happen within the first year after closing the deal, which 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.”
“We do not anticipate significant headcount reductions given the complementary nature of this transaction, and we do not anticipate facility closures as part of the expected synergies,” said AK Steel spokeswoman Lisa Jester. “This transaction is focused on growth.”
AK Steel Holding Corp. 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.
Shares of Cleveland-Cliffs dropped 10.7 percent by the close of the market Tuesday, while AK Steel's stock was up 4.15 percent.
After a brief spike in prices, U.S. steel producers have struggled since the Trump administration put a 25 percent steel tariff into place last year. Domestic demand has slumped as oil and gas drillers pull back on purchases of steel pipe, with prices for natural gas tumbling 45 percent over the past 12 months.
U.S. Steel in its last quarter reported its first loss since early 2017, and the division that makes pipes for energy companies lost $25 million. It has laid off workers and shut down some of its blast furnaces.
The price for hot rolled steel has slid almost 30 percent this year, and the stock of steel producers have fallen in tandem.
The steel industry added just 1,800 jobs since February 2018, the month before the tariffs took effect, and it employs 10,000 fewer people than they did five years ago.
The Associated Press contributed to this report.
• traces roots to 1899
• produces flat-rolled carbon, stainless and electrical steel products, primarily for the automotive, infrastructure and manufacturing, including electrical power, and distributors and converters markets
• third largest private employer in Butler County
• employs approximately 2,500 people in Southwest Ohio.
• has approximately 9,500 employees at manufacturing operations worldwide