(Reuters) – ArcelorMittal SA, the world’s largest steel producer, is exploring a deal to combine its US operations with Cleveland-Cliffs Inc, the largest US producer of iron ore pellets, people said on Sunday that they have familiar with the matter.
The combination would signal a new push among steel producers to consolidate and diversify their business, making it less vulnerable to fluctuating demand. It would come after Cleveland-Cliffs acquired AK Steel, a US producer of flat rolled carbon steels, including stainless steel, for $ 3 billion, including debt, last March.
The latest deal could lead to the merger of Luxembourg-based US assets of ArcelorMittal worth between $ 2 billion and $ 3 billion with Cleveland-Cliffs, one of the sources said. It would be transformative for Cleveland-Cliffs, which has a market value of $ 2.3 billion and had total long-term debt at the end of June of $ 4.5 billion.
There is no certainty that the negotiations will lead to an agreement, the sources said. If, however, the talks are successful, a deal could be announced in the coming days, one of the sources added.
The sources asked for anonymity because the matter is confidential. ArcelorMittal and Cleveland-Cliffs did not immediately respond to requests for comment.
ArcelorMittal said last year that it aimed to offload $ 2 billion in assets by mid-2021 to reduce its debt. In December, it agreed to sell a 50% stake in its shipping business and also sold its stake in the Brazilian steelmaker Gerdau.
After acquiring AK Steel, which derived 66% of its 2019 revenue from the auto market, Cleveland-Cliffs experienced a decline in demand from its auto-manufacturing customers, who were forced to temporarily stop production at the early this year due to the COVID-19 pandemic.
Greg Roumeliotis reporting in New York; Editing by Peter Cooney