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Quarterly report [Sections 13 or 15(d)]

ACQUISITIONS

v3.25.1
ACQUISITIONS
 3 Months Ended
Mar. 31, 2025
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] Ìý
ACQUISITONS
NOTE 3 - ACQUISITIONS
STELCO ACQUISITION OVERVIEW
On November 1, 2024, pursuant to the Arrangement Agreement, we completed the Stelco Acquisition, in which we were the acquirer. The Stelco Acquisition expands our existing presence in Canada and diversifies our customer base across service centers, construction and other industrial end markets in Canada with higher volumes of spot sales.
The Stelco Acquisition was accounted for under the acquisition method of accounting for business combinations.
The fair value of the total purchase consideration was determined as follows:
(In millions)
Total cash consideration $ 2,450Ìý
Total share exchange consideration 343Ìý
Total debt consideration 415Ìý
Total purchase consideration $ 3,208Ìý
Total consideration shares are calculated as follows:
Number of outstanding Stelco shares 54,448,388Ìý
Number of outstanding share-based compensation awards 2,516,415Ìý
Total consideration shares 56,964,803Ìý
Total estimated cash consideration is calculated as follows:
Number of consideration shares 56,964,803Ìý
Consideration share price per share (CAD) $ 60.00Ìý
Total cash consideration (CAD) (in millions) 3,418Ìý
Exchange rate (November 1, 2024) 0.7168Ìý
Total cash consideration (USD) $ 2,450Ìý
The fair value of share exchange consideration is as follows:
Number of consideration shares 56,964,803Ìý
Fixed share exchange factor 0.454Ìý
Total Cliffs exchange shares 25,862,021Ìý
Cliffs share price at closing date (November 1, 2024) $ 13.27Ìý
Total share exchange consideration (in millions) $ 343Ìý
The fair value of debt consideration includes outstanding obligations with preexisting change-in-control provisions requiring repayment at the time of closing. The debt consideration includes amounts repaid in connection with retiring Stelco's asset-based lending facility and inventory monetization arrangement.
VALUATION ASSUMPTION AND PURCHASE PRICE ALLOCATION
We estimated fair values at November 1, 2024 for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the Stelco Acquisition. During the measurement period, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. If we determine any measurement period adjustments are material, we will apply those adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. We are in the process of conducting a valuation of the assets acquired and liabilities assumed related to the Stelco Acquisition, most notably, personal and real property, deferred taxes, environmental obligations, asset retirement obligations and intangible assets, and the final allocation will be made when completed, including the result of any identified goodwill. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.
The preliminary purchase price allocation to assets acquired and liabilities assumed in the Stelco Acquisition was:
(In millions) Initial Allocation of Consideration Measurement Period Adjustments Updated Allocation
Cash and cash equivalents $ 341Ìý $ —Ìý $ 341Ìý
Accounts receivable 104Ìý —Ìý 104Ìý
Inventories 726Ìý (7) 719Ìý
Other current assets 107Ìý (1) 106Ìý
Property, plant and equipment 1,286Ìý (5) 1,281Ìý
Intangible assets 1,025Ìý —Ìý 1,025Ìý
Other non-current assets 250Ìý —Ìý 250Ìý
Accounts payable (212) —Ìý (212)
Accrued employment costs (29) —Ìý (29)
Accrued expenses (6) (1) (7)
Other current liabilities (71) —Ìý (71)
Pension and OPEB liability, non-current (14) —Ìý (14)
Deferred income taxes (449) 10Ìý (439)
Asset retirement and environmental obligations (20) —Ìý (20)
Other non-current liabilities (616) 5Ìý (611)
Net identifiable assets acquired 2,422Ìý 1Ìý 2,423Ìý
Goodwill 786Ìý (1) 785Ìý
Total net assets acquired $ 3,208Ìý $ —Ìý $ 3,208Ìý
The goodwill resulting from the Stelco Acquisition primarily represents the growth opportunities through diversification within our customer base across service centers, construction and other industrial end markets with higher volumes of spot sales, as well as any synergistic benefits to be realized from the Stelco Acquisition within our Steelmaking segment. Goodwill is not expected to be deductible for U.S. federal income tax purposes.
The purchase price allocated to identifiable intangible assets acquired was:
(In millions) Weighted Average Life (In years)
Intangible assets:
Customer relationships $ 953Ìý 15
Trade names and trademarks 72Ìý 15
Total identifiable intangible assets $ 1,025Ìý 15
PRO FORMA RESULTS
The following table provides unaudited pro forma financial information, prepared in accordance with Topic 805, Business Combinations, as if Stelco had been acquired as of January 1, 2023:
Three Months Ended March 31,
(In millions) 2024
Revenues $ 5,752Ìý
Net loss attributable to Cliffs shareholders (93)
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments, net of tax, that assume the Stelco Acquisition occurred on JanuaryÌý1, 2023. There were no significant non-recurring pro forma adjustments included in the pro forma results for the three months ended March 31, 2024.
The unaudited pro forma financial information does not reflect the potential realization of synergies or cost savings, nor does it reflect other costs relating to the integration of the acquired company. This unaudited pro forma financial information should not be considered indicative of the results that would have actually occurred if the Stelco Acquisition had been consummated on JanuaryÌý1, 2023, nor are they indicative of future results.