Cleveland-Cliffs Inc (NYSE: CLF) will buy Ferrous Processing and Trading Company (FPT), including certain related entities, for about $775 million, the Ohio-based steelmaker revealed in a press release on Monday.
Cleveland shares jumped more than 6.0% on the news this morning. The $10.86 billion company now has a price to earnings ratio of 14.19.
Jim Lebenthal applauds the deal on CNBC’s ‘Squawk Box’
According to Cerity Partners’ Jim Lebenthal, who owns the stock, it’s an important “strategic deal” for Cleveland-Cliffs to bring FPT under its umbrella. On CNBC’s “Squawk Box”, he said:
Many consider Cleveland-Cliffs to be an iron ore company. It’s not. It’s an integrated steel manufacturer. And with today’s deal, they have secured a new source of raw material – scrap metal.
Lebenthal sees the use of scrap metal as raw material to be the future of the steel industry. FPT is one of the largest U.S. processors and distributors of prime ferrous scrap.
What to watch in Cleveland-Cliffs quarterly earnings later this month
Shares of Cleveland-Cliffs are still down more than 15% from their high in August, but Lebenthal is convinced that they’ll recover in the upcoming months. He added:
The stock has had turbulence, but I think the long-term trend is intact. Steel is at a high price, and it’ll come down at some point. But right now, these guys are making money hand over fist as their raw materials are low-cost and finished goods are very high priced.
Cleveland-Cliffs is scheduled to report its quarterly earnings later this month, in which Lebenthal said he’d fixate on the company’s free cash flow.
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