By Alistair MacDonald
ArcelorMittal SA has agreed to sell its U.S. business to Cleveland-Cliffs Inc. for around $1.4 billion, a deal that will further diminish its position as the world's largest steelmaker as it grapples with the fallout from the coronavirus pandemic.
The Luxembourg-based company said Monday that about one-third of the deal value will be paid in cash upfront, with the rest paid in stock. ArcelorMittal said it would use the proceeds to pay down debt and hand $500 million of the proceeds back to investors in share buybacks.
The company's shares jumped 10% in morning trading but are still down about 28% so far this year as the global economy suffers from the spread of Covid-19 and resulting lockdowns.
ArcelorMittal was America's second-largest steelmaker, producing 12.9 million metric tons of the metal in the U.S. last year, accounting for 14% of the company's global production. The company is shedding mines and steelmaking facilities in the U.S. that had generated revenues of $9.9 billion last year and will leave it with only one significant asset in America -- a steel finishing plant in Calvert, Alabama that it owns with Nippon Steel Corp.
The company became the world's largest steelmaker by production after two decades of aggressive deal making across the globe but its hold on the position is slipping. Even before Monday's deal, China Baowu Steel Group Corp. had been expected to take the top spot this year after combining with other domestic steelmakers, cementing China's dominance in the industry.
Steel making has been hit hard by the spread of coronavirus, particularly in ArcelorMittal's largest market of Europe. Production in Europe's biggest economies was down by double digits in August compared with the year before, including a 31.2% decline in France, according to the World Steel Association. Production in the U.S. also dropped, falling 24.4% in the month.
Meanwhile, Chinese production rose 8.4% in the period, allowing its steelmakers to increase the proportion of the world's steel being made in their mills.
Despite selling the majority of its U.S. operations, ArcelorMittal said it would still be able to service clients in North America through its operations in Canada and Mexico. It also said it stood to benefit in the region from the minority shareholding it was receiving in Cleveland-Cliffs. It expects the combined entity to generate around $150 million of annual cost savings.
Under Monday's deal, Cleveland-Cliffs is also set to assume liabilities from ArcelorMittal USA valued at a combined $2 billion. ArcelorMittal said that would allow it to reduce its net debt, which stands at about $7.8 billion.
The transaction is expected to close within the fourth quarter of 2020, subject to regulatory approvals and customary closing conditions.
--Giulia Petroni contributed to this article.
Write to Alistair MacDonald at email@example.com