AK Steel — Merger or Acquisition (December 2019)
21 slides from AK Steel's merger presentation, Dec 3, 2019
Slide 1: Cleveland-Cliffs to Acquire AK Steel
Cleveland-Cliffs to Acquire AK Steel DECEMBER 3, 2019
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains statements that constitute "forward-looking statements" within the meaning of the federal securities laws. As a general matter, forward-looking statements relate to anticipated trends and expectations rather than historical matters. Forward-looki
Slide 3: Additional Statements
ADDITIONAL STATEMENTS Participants in the Solicitation AKS, CLF and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding AKS’ directors and executive officers, includ
Slide 4: Today's Presenters
TODAY’S PRESENTERS Lourenco Goncalves Keith Koci Roger Newport Cleveland-Cliffs Cleveland-Cliffs AK Steel Chairman of the Board, Executive Vice President and CFO CEO and Director President and CEO 3
Slide 5: Overview of Cleveland-Cliffs' Acquisition of AK Steel
OVERVIEW OF CLEVELAND-CLIFFS’ ACQUISITION OF AK STEEL • Cleveland-Cliffs to acquire AK Steel in an all-stock transaction at an exchange ratio of 0.400x • Represents a 16% premium to AK Steel’s stock price as of December 2, 2019 Transaction Structure • Transaction implies a total enterprise value(1)
Slide 6: Creates Vertically Integrated Producer of Value-Added Iron Ore and Steel
CREATES VERTICALLY INTEGRATED PRODUCER OF VALUE-ADDED IRON ORE AND STEEL • Transforms Cleveland-Cliffs into a best-in-class iron ore & steel producer with industry leading margins • Self-sufficiency in iron ore creates raw materials efficiency in steel production • Deeply integrated downstream in hi
Slide 7: Transaction Rationale and Industrial Logic Is Compelling
TRANSACTION RATIONALE AND INDUSTRIAL LOGIC IS COMPELLING Combines AK Steel’s high quality steel assets with a reliable supply of high quality iron ore pellets Creates a vertically integrated steel manufacturer with industry leading margins through raw material cost savings Generates more predictable
Slide 8: Robust Pro Forma Financial Profile
ROBUST PRO FORMA FINANCIAL PROFILE Revenue ($m)(1) Adjusted EBITDA ($m)(2) +281% +109% $1,257 Dramatically $8,205 improved scale and earnings $602 diversification $2,152 9/30/19 LTM 9/30/19 LTM 9/30/19 LTM 9/30/19 LTM Strong FCF profile FCF ($m)(3) Total Debt / Adj. EBITDA(4) positions PF company we
Slide 9: Transaction Creates Leading EBITDA Margins in North American Steel Industry
TRANSACTION CREATES LEADING EBITDA MARGINS IN NORTH AMERICAN STEEL INDUSTRY • Cleveland-Cliffs currently generates a margin of approximately $30-$40/short ton for every pellet produced and sold to AK Steel • That margin differential is a lever available to the PF company that is not available to AK
Slide 10: AK Steel Has Best-in-Class Position in Non-Commoditized Steel
AK STEEL HAS BEST-IN-CLASS POSITION IN NON-COMMODITIZED STEEL AK Steel’s 2018A sales by end-market Automotive sales as a percentage of total sales(1) Automotive Infrastructure and manufacturing 63% Distributors and converters 22% 34% 29% 63% 25% 20% 15% 17% 12% 6% 3% • Significant North American pro
Slide 11: Steel Demand in Automotive Sector Projected to Remain Strong
STEEL DEMAND IN AUTOMOTIVE SECTOR PROJECTED TO REMAIN STRONG Solid market fundamentals North America light vehicle production (millions of units) 17.0 16.7 16.2 16.4 16.6 16.8 17.0 17.1 Stable and consistent automotive production growth expected over the next decade Growing demand for lighter but st
Slide 12: Significantly De-Risks Cleveland-Cliffs' Future Pellet Offtake
SIGNIFICANTLY DE-RISKS CLEVELAND-CLIFFS’ FUTURE PELLET OFFTAKE Illustrative shipment breakdown (current) Pro Forma – sample pellet demand breakdown (Long tons) (Long tons) Contracted through Contracted through 2026: 7-10mt 2026: 7-10mt Additional third party sales and/or Contracted through Ashland P
Slide 13: Provides Compelling Opportunity for Further EAF-Oriented Growth
PROVIDES COMPELLING OPPORTUNITY FOR FURTHER EAF-ORIENTED GROWTH Turns Ashland from a negative to a positive • Potentially provides a compelling, low-capex, high-return opportunity to be a significant merchant pig iron supplier in the Great Lakes • Eliminates up to $60 million of closure-related cost
Slide 14: Delivers Significant Synergy Potential
DELIVERS SIGNIFICANT SYNERGY POTENTIAL . Approximately $120 million in annual cost synergies estimated, including approximately $40 million in annual public company-related cost savings alone − Using an assumed Cliffs multiple of 7.0x, value of synergies represents ~26% of combined market cap of the
Slide 15: Ample Financial Capacity to Address AK Steel's Near-Term Maturities
CLEVELAND-CLIFFS HAS AMPLE FINANCIAL CAPACITY TO ADDRESS AK STEEL’S NEAR-TERM MATURITIES WACD: ~5.1% $789 $750 Cleveland- 4-year $316 Cliffs’ Existing $400 $298 Debt Maturity window $473 Profile 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 … 2040 Senior Secured Notes Guaranteed Notes Unsecured
Slide 16: Strong and Sustainable Pro Forma Balance Sheet
STRONG AND SUSTAINABLE PRO FORMA BALANCE SHEET $1,513 $454 $1,142 $1,030 4-year window $316 $750 $500(1) $462 $473 $298 (1) $400 $500 $392 $270 $7 $62 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 … 2040 Unsecured Notes (AKS) Industrial Revenue Bonds (AKS) Senior Secured Notes (CLF) Guaranteed N
Slide 17: Financing Strategy in Place to Address AK Steel Balance Sheet
FINANCING STRATEGY IN PLACE TO ADDRESS AK STEEL BALANCE SHEET • Cleveland-Cliffs’ $450 million ABL and AK Steel’s $1.5 billion ABL to be replaced by a new ABL $2.0 billion facility(1) AK Steel 2023 • To be refinanced as part of the transaction with lower cost secured notes Secured Notes AK Steel • T
Slide 18: The New Cleveland-Cliffs
THE NEW CLEVELAND-CLIFFS Best-in-class, high-value added iron ore & steel producer in North America with industry leading margins Exceptionally well-positioned to generate value for diverse customer base across both BF and EAF businesses De-risks up to 9 million long tons of pellets (approximately 4
Slide 19: The New Cleveland-Cliffs
THE NEW CLEVELAND-CLIFFS Northshore Mine Hibbing Taconite Tilden Mine Mine ON (23% owned) Walbridge, OH Windsor, Tillsonburg United Taconite MI & Otterville, ON, Mine Canada MN Cleveland- Cliffs Headquarters Empire Mine (Cleveland, OH) (idled) MI Butler, PA PA AK Coal Dearborn, MI Resources Toledo H
Slide 20: Timeline to Close
TIMELINE TO CLOSE • Prepare and file • Cleveland-Cliffs stockholders vote documents with the SEC to approve transaction • AK Steel stockholders vote to approve transaction Expect to close 12/03/19 ~1 month ~2 - 3 months ~4 months TBD transaction (1H 2020) • SEC reviews and gives comments; proxies pr
Slide 21: ~— CLIFFS
~— CLIFFS
AK Steel Holding — Merger or Acquisition (December 2019) on 6ix