Alpha to be purchased for nearly $10 billion

The combined company would have the largest reserves of iron ore on three continents.

CLEVELAND (AP) — The buying spree by Cleveland-Cliffs continued Wednesday with a nearly $10 billion acquisition of Alpha Natural Resources, broadening the one-time Midwest company’s international reach as well as its exposure to a global steel industry clamoring to fuel its mills.

Its biggest acquisition to date, the cash-and-stock deal will create a company with the largest reserves of iron ore and metallurgical coal in the U.S.

The company will be named Cliffs Natural Resources, and own nine iron ore facilities and more than 60 coal mines in North and South America and Australia.

A global consolidation of the commodities industry has begun to accelerate. The Cleveland-Cliffs deal comes on the heels of major acquisitions by Luxembourg-based ArcelorMittal, the world’s largest steelmaker, and Korean steel giant Posco.

Cleveland-Cliffs Chief Executive Joseph Carrabba said the deal shows that U.S. steel is still robust compared with growing international steelmakers.

“It was an old-line industry written off as dead that has emerged and been spectacularly successful,” Carrabba said.

The boards of both Cleveland-based Cleveland-Cliffs and Abingdon, Va.-based Alpha Natural Resources Inc. approved the deal, in which Alpha shareholders will receive 0.95 Cleveland-Cliffs shares ($105.89 based on the stock’s Tuesday closing price) and $22.23 in cash for each share held.

Cleveland-Cliffs shares tumbled 9 percent, or $10.24, to $101.22. The stock, however, is still nearly four times above its 52-week low of $28.20. Alpha’s stock’s jumped 10 percent, or $9.93, to $104.85. Its 52-week low is $15.92.

Based on Cleveland-Cliff’s closing price Tuesday, Alpha shareholders will receive $128.12 per share, a 35 percent premium to Alpha’s Tuesday close of $94.92. Based on the company’s 70.3 million outstanding shares at April 23, the deal is valued at $9.01 billion. In a statement, the companies valued the transaction at $10 billion.

Cleveland-Cliffs will pay $1.7 billion in cash and issue 71 million new shares of common stock to finance the deal, it said. JPMorgan Chase Bank is providing an underwriting commitment for up to $1.9 billion in financing. After the deal closes, Alpha stockholders will own about 40 percent of the combined company, and Cleveland-Cliffs shareholders will own 60 percent.