Luxembourg-headquartered steel manufacturer ArcelorMittal announced today that it is selling its US shares to Cleveland-Cliffs Inc. for approximately $1.4 billion.

ArcelorMittal has entered into a definitive agreement with Cleveland-Cliffs, which will see the latter acquire 100% of the shares of ArcelorMittal USA for a combination of cash and stock.

Under the terms of the agreement, ArcelorMittal expects to receive an aggregate equity value consideration of $1.4 billion upon closing of the transaction. Approximately one-third of the consideration is in upfront cash ($505 million), with the remaining two-thirds taking the form of equity: stock component of approximately 78 million shares of Cleveland-Cliffs common stock with value of $500 million; and non-voting preferred stock redeemable for approximately 58 million shares of Cleveland-Cliffs common stock with an aggregate value of $373 million or an equivalent amount in cash.

In addition, Cleveland-Cliffs will assume the liabilities of ArcelorMittal USA, including net liabilities of approximately $0.5 billion and pensions and other post-employment benefit liabilities (OPEB) which Cleveland-Cliffs values at $1.5 billion.

According to ArcelorMittal, the transaction benefits the steel manufacturer through a favourable valuation achieved for ArcelorMittal USA due to the high synergistic potential of the combined company and its participation in the upside potential of the larger combined company, which is more diversified, fully-integrated and has significant synergy potential.

The combined company is expected to generate an estimated $150 million of annual cost synergies. ArcelorMittal will participate in the future value creation potential through its minority shareholding. Key areas of anticipated synergies include optimising the combined footprint, raw material sourcing and supply chain efficiencies and integrating corporate functions.

In addition, ArcelorMittal announced its intention to redistribute $500 million of the cash proceeds to shareholders through a share buyback programme, which will commence with effect from today and comply with purchase price rules as per the Company’s share buyback mandate. Share buybacks may be undertaken until the earlier of 31 March 2021 or when ArcelorMittal has fully utilised the allocated $500 million.

Commenting on this development, Lakshmi Mittal, Chairman and CEO of ArcelorMittal, said: “This transaction is a unique opportunity for ArcelorMittal to unlock significant value for shareholders while retaining exposure to the North American economy through our high-quality NAFTA assets alongside a participation in what will be a stronger, better integrated, US business".