Officials at both companies will have more information on the proposed deal at a press conference on Tuesday morning, but the deal will give the current owners of Algoma just over US $ 1.1 billion in new shares. in the combined company. Legato itself only went public in an initial public offering earlier this year, raising $ 236 million to fund acquisitions.
The company is what is known as a Special Purpose Acquisition Company, or SPAC, which are basically publicly traded pools of money created just to buy other companies.
Legato’s shares trade on the Nasdaq, but once the deal is done, Algoma will also file an application to list its shares on the Toronto Stock Exchange.
Legato is looking to buy companies in renewable energy, infrastructure and industry, and Algoma fits the bill.
While Legato is new, Algoma has been around in one form or another for over 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 steel price crater. .
Algoma emerged from these procedures as an independent entity and has since focused on sustainability. Among other initiatives, the company proposes to convert one of its coal-fired blast furnaces into an electric arc system that would reduce its carbon emissions by more than three million tonnes per year.
The company currently has a production capacity of approximately 2.8 million tonnes of steel per year, making it the second largest steel company in Canada. It also employs around 2,700 people. That number of employees is not expected to change as a result of the all-stock deal, and Algoma’s current management team will remain with the new company.
Steel prices hit their highest level in decades this year. Similar to other commodities, production and prices slowed to a ramp throughout 2020 as the global economy slows to deal with COVID-19. But now steelmakers cannot meet the demand.
In February, the rating agency Moody’s upgraded the company’s credit rating on the basis of “improved operational performance and credit metrics due to rising steel and gas prices. hope the company will generate positive free cash flow, ”Moody’s said in a statement.
« Non [steel] The market was spared in 2020 as demand and shipments were affected by the ripple effects of the pandemic, ”said Andrew Cosgrove, metals and mining analyst at Bloomberg Intelligence, in a market report from steel last week. in 2021, as shipments climb nearly 30%, with the construction sector likely to generate about two-thirds of the increase, in our view. ”