Algoma Steel Inc. has agreed to be acquired by a U.S.-based special-purpose acquisition company (SPAC) in a deal that values the venerable Ontario producer at US$1.3-billion and will see it return to public markets.
Legato Merger Corp. will buy the Sault St. Marie-based Algoma in the all-stock deal, which will see Algoma listed on Nasdaq and the Toronto Stock Exchange. The 119-year-old company struggled through years of court-supervised restructuring before emerging as a private company in 2018.
Algoma last traded on public markets in 2007, before it was acquired by India’s Essar Global Ltd.
The deal with Legato will provide Algoma with investment capital and a stronger capital structure, which will help the company thrive when steel prices are in high and low parts of the cycle, chief executive officer Michael McQuade said.
Mr. McQuade said the company is considering a “substantial investment” in electric-arc steelmaking, which would slash Algoma’s carbon emissions.
New York-based Legato went public in January, raising US$236-million it earmarked for acquisitions. SPACs raise capital through initial public offerings of units priced at US$10 each. The units include one common share and a warrant. The cash sits in trust until the SPAC buys a private operating company. Legato is led by Brian Pratt, Eric Rosenfeld and David Sgro.
Algoma will benefit from the cash in Legato’s trust. The deal will also include a US$100-million private investment in the entity from steel-industry participants, as well as Legato’s chairman, TD Wealth Management, Vantage Asset Management, JC Clark, Hite and Goodwood Fund, the companies said.
After the transaction closes, Algoma’s shareholders and managers will own 75-million Algoma shares, with an implied value of US$750-million. They can receive another 37.5-million shares if certain financial and stock price targets are met within five years. If that happens, they will own 74 per cent of the outstanding shares and Legato’s shareholders will own 19 per cent.
The deal is expected to close in the third quarter of this year.
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