By Bob Tita and Alistair McDonald 

Steelmaker ArcelorMittal SA plans to sell its U.S. plants to mining company Cleveland-Cliffs Inc. for $1.4 billion, retreating from older mills in the industrial heartland that underpinned its expansion into becoming America's second-largest steel producer.

The deal would put more than a dozen plants and mines under the ownership of Cleveland-based Cliffs and elevate its profile as a steel producer. President Trump has made the revitalization of the domestic steel industry a priority for his administration, fortifying struggling mills in political battleground states with tariffs in 2018 to raise steel prices.

For ArcelorMittal, the deal further diminishes its position as the world's largest steelmaker as it grapples with the fallout from the coronavirus pandemic. China Baowu Steel Group Corp. was already expected to succeed ArcelorMittal as the industry's biggest competitor, not least because Chinese production continues to grow even as production stalls elsewhere.

Steel making has been hit hard by the coronavirus pandemic, as demand and prices plunged after factories and automotive assembly plants were idled this spring. U.S. production of steel is down 20% this year compared with last year, as mills operate at slightly more than two-thirds capacity. In Europe, ArcelorMittal's biggest market, production fell by double-digit percentages, including a 31% decline in France.

Production in China is up 8.4% this year, allowing the country's steelmakers to increase the proportion of the world's steel being made in their mills.

ArcelorMittal entered the U.S. steel market in the late 1990s and became a significant competitor with its $4.5 billion purchase of International Steel Group in 2004. That company was assembled by Wilbur Ross, now the U.S. Commerce secretary, from dozens of steel companies that fell into bankruptcy in the early 2000s.

Most of the plants were decades old and operated by unionized workforces in traditional steelmaking hubs in Indiana, Ohio and Pennsylvania. They supplied steel to auto and appliance manufacturers in the Midwest. Manufacturing and steelmaking have since steadily shifted to Sun Belt states. North Carolina-based Nucor Corp. and other steelmakers with newer, more efficient plants can produce steel more inexpensively than ArcelorMittal and other legacy steelmakers. They now account for a majority of the steel produced in the U.S.

Luxembourg-based ArcelorMittal was the second-largest producer of steel in the U.S. last year, behind Nucor. The U.S. accounted for 14% of ArcelorMittal's global steel production and generated $9.9 billion in revenue last year. After the sale, ArcelorMittal will operate just one plant in the U.S., a steel-finishing mill near Mobile, Ala., that it plans to upgrade to produce steel.

Cliffs has been supplying iron ore to ArcelorMittal and other steelmakers. The company acquired steelmaker AK Steel in Ohio last year to preserve a large customer that had struggled to earn a profit for years. Cliffs's acquisition of ArcelorMittal's U.S. plants would be a significant shift in focus toward steel production. The company is set to obtain 14 plants that make steel or roll and coat it; three coal-coking plants; and two iron-ore mining operations. The deal would merge high-volume steel production with Cliffs's large reserves of iron-ore feedstock under a single company that would employ about 25,000 workers.

"With the acquisition of ArcelorMittal USA, Cleveland-Cliffs will complete the transformation into a fully integrated, high-value steel enterprise," Cliffs Chief Executive Lourenco Goncalves said on a conference call.

Shares in Cliffs were up 10% at $6.48 early Monday afternoon.

Cliffs said it would pay about one-third of the $1.4 billion purchase price in cash up front. The remaining two-thirds would be in Cliffs stock. ArcelorMittal would hold a 16% stake in Cliffs as result of the deal. ArcelorMittal said it would hand $500 million back to investors in share buybacks.

"This is a strategic repositioning of our assets, but not a strategic repositioning of our market presence. We remain a strong regional player, " ArcelorMittal President Aditya Mittal said during a call with analysts.

Founder and Chief Executive Lakshmi Mittal created the world's largest steelmaker during two decades of aggressive deal making. He said in an interview the sale of the U.S. mills has been under consideration since last year, after executives concluded that the inability of the mills to use company-owned iron ore put them at a permanent disadvantage to U.S. competitors with their own ore supplies.

Despite the plan to sell the majority of its U.S. operations, ArcelorMittal said it would still service clients in North America through its mills in Canada, Mexico and Alabama. Analysts consider the company's Dofasco mill in Ontario to be one of the best in North America.

The transaction is expected to close within the fourth quarter of 2020, subject to regulatory approvals and customary closing conditions.

Write to Bob Tita at robert.tita@wsj.com

 

(END) Dow Jones Newswires

September 28, 2020 13:39 ET (17:39 GMT)

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