Rolls of coiled coated steel are shown at Stelco in Hamilton on June 29, 2018. Stelco is the biggest Canadian steelmaker, and it operates the Lake Erie Works steel plant and Hamilton Works, both in Ontario.Peter Power/The Canadian Press
Cleveland-Cliffs Inc. chief executive officer Lourenco Goncalves says he’s confident of obtaining federal-government approval to buy Canadian steelmaker Stelco Holdings Inc. STLC-T despite newly tightened foreign-takeover rules.
The second-biggest steelmaker in the United States announced Monday that it intends to buy Hamilton-based Stelco for roughly $3.85-billion. Cleveland-Cliffs CLF-N is offering $60 in cash and 0.454 of its shares for each Stelco share. The buyout is worth $70 a share, an 89-per-cent premium to Stelco’s closing price on the Toronto Stock Exchange last Friday.
The deal will be subject to antitrust probes in Canada and the United States, and reviews on national-security and net-benefit grounds by Industry Minister François-Philippe Champagne.
Mr. Goncalves, on a conference call with analysts Monday, said he expects the transaction to be approved without much fuss.
“We see a very clear path and a very short and very objective process,” he said.
Early phone calls with Canadian federal and provincial officials have gone well, Mr. Goncalves said.
“We’re in good shape,” he said. “We are covered by not only a legal opinion, but a legal strategy to get this thing done and done fast.”
Ottawa is scrutinizing mining takeovers more closely. On July 4, the federal government said it would only approve future acquisitions of Canadian producers with significant critical-minerals operations under the most exceptional circumstances.
While high-purity iron used in steelmaking is a critical mineral, steel itself is not classified as such in Canada, which on paper should make the path to approval easier.
The steel sector, however, is seen as a strategic industry for the West. In the United States, the recent proposed acquisition of United States Steel Corp. (U.S. Steel) by Japan’s Nippon Steel Corp. inflamed President Joe Biden. He vowed to block the acquisition, saying that it is important that U.S. Steel remain domestically owned.
Audrey Champoux, press secretary for Mr. Champagne, in an e-mail to The Globe and Mail, declined to comment on the government’s review of the proposed Stelco acquisition, citing confidentiality provisions of the Investment Canada Act.
Ottawa recently approved Glencore PLC of Switzerland’s US$6.9-billion acquisition of the steelmaking coal business of Teck Resources Ltd., but that was after a probe that lasted eight months. The federal government also imposed several legally binding conditions on Glencore, including long-term guarantees around jobs, the necessity to keep a Canadian head office for a decade, and mandating two-thirds representation of Canadians in executive and senior-management jobs.
Mr. Goncalves said Monday there will be upper-management layoffs at Stelco as a result of the transaction, but there will be no impact on union jobs. Cleveland-Cliffs also said it will retain Canadian representation on the management team, but did not specify the number.
Originally called the Steel Company of Canada, Stelco was founded in 1910 and was a long-time power player in North American steel production. In 2007, it was acquired by U.S. Steel during a wave of global consolidation in the metals and mining sector.
Hit hard by the great financial crisis of 2008, debt-laden U.S. Steel put its Canadian subsidiary into creditor protection in 2014. Stelco went public again in 2017 after a mammoth restructuring effort led by U.S. financier Alan Kestenbaum that saw it shed $3-billion in debt and $1.4-billion in pension and benefit obligations.
Stelco is the biggest Canadian steelmaker, and it operates the Lake Erie Works steel plant and Hamilton Works, both in Ontario. The company is a major supplier to the automotive sector.
Cleveland-Cliffs is buying Stelco at a time when the steel market has softened and its share price has underperformed. Its stock is trading about 25 per cent lower than it was in April, and about 50 per cent lower than at its 2022 peak.
But Mr. Goncalves shrugged off any suggestion that the timing isn’t right.
“It’s a good thing to buy low and sell high,” he said. “Others do the opposite. That’s bad stuff.”
Stelco shares jumped by 74 per cent on the TSX on Monday to close at $65 apiece, while Cleveland-Cliffs closed up 0.25 per cent to US$16.21 on the New York Stock Exchange.