NEW YORK (CNNfn) - AK Steel Holding Corp. agreed Friday to buy Armco Inc., its former parent company, in a $1.3 billion deal that will create the country's fifth-largest steel maker.
Under the proposed tax-free merger, expected to close during the third quarter, Armco's common shareholders will receive 0.2836 share of AK Steel common stock for each share they own. The deal values Armco at $7.50 per share, giving the common stock exchange a value of $842 million.
AK Steel also has agreed to give holders of Armco's $3.625 preferred stock an equal amount of newly issued AK Steel preferred shares. That transaction, combined with roughly an equal amount of newly-issued debt, will account for the deal's remaining $458 million value, an AK Steel spokesman said.
If the average closing price of AK Steel's common stock climbs above a pre-determined level of $26.44 during the approval process, Armco's common shareholders will receive stock valued at more than $7.50 per share, but not more than $8.00.
Should AK Steel's share price fall below $22, Armco has the option of terminating the deal or accepting a fixed exchange ratio of 0.3409 AK Steel share for each common share they own.
Once a child, now a parent
Combined, the two companies will have annual revenue exceeding $4.1 billion and assets of $5.2 billion. That would rank it behind only US Steel Group, Bethlehem Steel (BET), LTV (LTV) and Nucor (NUE) in annual revenue among steel makers.
AK Steel's (AKS) carbon flat-rolled business line was at one time owned by Armco (AS), before the Pittsburgh-based company sold a 50 percent stake to Japan's Kawasaki Steel in 1989.
That operation was renamed AK Steel and taken public in 1994. Armco sold its remaining stake two years later, while Kawasaki retains a 14 percent stake in the firm.