09:35 AM EDT, 07/15/2024 (MT Newswires) -- Cleveland-Cliffs ( CLF ) agreed to buy Canadian steel company Stelco for about $2.5 billion, as the company seeks to expand its steelmaking presence and exposure to the flat-rolled spot market.

The per-share consideration is 70 Canadian dollars ($51.29), which includes CA$60 in cash and 0.454 shares of Cleveland-Cliffs ( CLF ) common stock, the companies said in separate statements Monday.

Cleveland-Cliffs ( CLF ) expects the deal to be immediately accretive to its 2024 and 2025 earnings on a per-share basis. The steel producer, which currently has 1,000 employees in Canada, will see an additional 1,800 United Steelworkers union employees join its workforce. The company said it has a "clear line of sight" to achieve about $120 million in annual cost savings with no impact to union jobs.

The transaction, which requires approval from regulators and Stelco's shareholders, is expected to complete in the fourth quarter. Shareholders including Fairfax Financial, Stelco Chief Executive Alan Kestenbaum and an affiliate of private-equity firm Lindsay Goldberg, which collectively own 45% of Stelco's overall shares, have agreed to vote in favor of the deal.

Following completion, Cleveland-Cliffs ( CLF ) will hold a roughly 95% stake in the combined company, while Stelco stockholders will own the remaining 5%. Stelco expects Cleveland-Cliffs ( CLF ) to delist the former's shares from the Toronto Stock Exchange.

Cleveland-Cliffs ( CLF ) projects the deal to complement its existing operations and diversify its construction and industrial segment customer base. "The enterprise value of this transaction is significantly lower than the cost of building an equivalent replacement mill in the US, and the cost structure is lower than what a new US mill would provide us," Cleveland-Cliffs ( CLF ) CEO Lourenco Goncalves said.

Stelco said it will be liable to pay a termination fee of CA$100 million to Cleveland-Cliffs ( CLF ) if it accepts a superior acquisition proposal. Cleveland-Cliffs ( CLF ) would be required to pay CA$131 million to Stelco if the deal is not completed in certain circumstances, according to Stelco.

Last year, United States Steel ( X ) rejected a $35 per-share acquisition offer from Cleveland-Cliffs ( CLF ), calling it "unreasonable."

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