Business

Canadian company Algoma Steel to go public again in takeover worth more than $1B US

Algoma Steel is to become a public company again as the century-old Canadian steelmaker has agreed to be taken over by New York-based acquisition firm Legato Merger Corp.

Sault Ste. Marie-based steelmaker can produce about 2.8 million tonnes of steel per year

Although the company has changed names and ownership over the years, Algoma has been making steel in Sault Ste. Marie for more than a century. (Yvon Theriault/ Radio-Canada CBC)

Algoma Steel is to become a public company again as the century-old Canadian steelmaker has agreed to be taken over by New York-based acquisition firm Legato Merger Corp.

Officials from both companies will have more information about the proposed deal at a news conference on Tuesday morning, but the deal will give Algoma's current owners just over $1.1 billion US worth of new shares in the combined company. That breaks down as $750 million worth of shares in the new company up front, plus another chunk of shares currently worth $375 million if certain financial targets are hit.

Legato itself only went public in an initial public offering earlier this year, raising $236 million to fund acquisitions.

The company is what's known as a special purpose acquisition company, or SPAC, which are essentially publicly traded pools of money created solely to purchase other companies.

Legato shares trade on the Nasdaq, but once the deal goes through Algoma will file to list its shares on the Toronto Stock Exchange, too.

Legato seeks to buy companies in the renewable energy, infrastructure and industrial sectors, and Algoma fits the bill.

While Legato is new, Algoma has been around in one form or another for more than a century. After being founded in 1902, the company was acquired in 2007 by Indian conglomerate Essar Group for more than $1.6 billion, before entering insolvency proceedings in 2015 after the price of steel cratered.

The price of hot rolled steel coil, shown here, has skyrocketed on booming demand. (Rich Press/Bloomberg)

Algoma emerged from those proceedings as an independent entity and has since set its focus to sustainability. Among other initiatives, the company is proposing to convert one of its coal-fired blast furnaces to an electric-arc system that would reduce its carbon emissions by more than three million tonnes a year. 

The company currently has a production capacity of about 2.8 million tonnes of steel a year, which makes it the second largest steel company in Canada. It also employs roughly 2,700 people. An investor presentation says the company is proposing $44 million worth of cost savings annually, but it's not immediately clear what that means for the company's current work force of 2,700 people.

Algoma's current management team will stay with the new company.

Steel prices have soared to their highest level in decades this year. Similar to other commodities, production and prices slowed to a crawl throughout 2020 as the world economy slowed down to deal with COVID-19. But now steelmakers can't keep up with demand.

In February, rating agency Moody's raised the company's credit rating based on "an improvement in operating performance and credit metrics due to higher steel prices and the expectation that the company will generate positive free cash flow," Moody's said in a release.

"No [steel] market was spared in 2020, as demand and shipments were hurt by knock-on effects from the pandemic," Bloomberg Intelligence metals and mining analyst Andrew Cosgrove said in a report on the steel market last week. "A sharp snapback is expected to take hold in 2021 as shipments climb nearly 30 per cent, with the construction sector likely to drive about two-thirds of the increase, in our view."

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