While much of the attention in the U.S. steel market is focused on United States Steel (X), there’s still the matter of Cleveland-Cliffs (CLF) to consider. While it was formerly looking at buying United States Steel, that may not be the case anymore. In fact, Cleveland-Cliffs agreed to buy Stelco Holdings, a Canadian steelmaking operation, for $2.8 billion. This resonated with shareholders, as it gained modestly in Monday afternoon’s trading.
This is the first major acquisition Cleveland-Cliffs has made since its failure to buy United States Steel. In perhaps the biggest surprise of the deal, Cleveland-Cliffs expects the deal will be accretive to profit starting with 2024’s own figures.
Cleveland-Cliffs reportedly made the play for Stelco thanks to its cost structure, which is significantly lower than its United States counterparts. That’s particularly true when compared to the cost of building a new mill outright. Once complete, Cleveland-Clifffs will own 95% of Stelco, while current Stelco holders will have 5%. Stelco will operate as “a wholly-owned unit.”
But Will It Help?
While shareholders are coming around to the notion, they weren’t always in favor. In fact, Cleveland-Cliffs shares started the day down around 2.2%. That recovery in the meantime to positive territory is quite a step upward. Further, the deal should be able to make it through regulatory scrutiny; Cleveland-Cliffs expects little issue from the Canadian government thanks to currently-established legal opinion.
The move should also prove welcome for Cleveland-Cliffs, which expects to save $120 million annually by picking up Stelco. Further, there won’t be any impact on current union jobs, which is certainly positive all around.
Is Cleveland-Cliffs a Buy or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on CLF stock based on two Buys, six Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 2.91% loss in its share price over the past year, the average CLF price target of $18.30 per share implies 13% upside potential.
