Algoma Steel Inc. in Sault Ste. Marie, Ont., has agreed to go public in a merger with Legato Merger Corp. in an all-stock deal estimated to be worth $1.3 billion.
Legato is a New York-based special purpose acquisition company that was founded in 2020 and focuses on acquisitions in renewables, infrastructure, energy and construction and industrial industries.
In the deal Algoma will become a publicly listed company with its common shares traded on the Nasdaq Stock Market. Algoma also intends to apply to list its common shares on the Toronto Stock Exchange.
“The proposed transaction will provide Algoma with investment capital and an enhanced capital structure to support further transformative investments that are expected to drive improved financial performance and sustainable returns through the steel pricing cycle,” says Michael McQuade, CEO of Algoma. “We continue to evaluate our strategic options, including the potential for a substantial investment in electric arc steelmaking.”
As a publicly traded company, Algoma will continue under its current management, with a board of directors that will include six directors designated by Algoma, three directors designated by Legato and one jointly nominated.
“We believe that Algoma’s transformation and potential investments will allow Legato stockholders to participate in a significant value creation opportunity. We are excited to partner with Algoma’s management team which has an impressive track record of implementing cost savings and operational upgrades over the last few years,” said Eric Rosenfeld, Legato’s chief SPAC officer.
Under the terms of the agreement, a subsidiary of Algoma will be merged with and into Legato, with Legato surviving the merger as a wholly-owned subsidiary of Algoma.
The transaction is expected to close in the third quarter of 2021, subject to the approval of Legato stockholders and the satisfaction or waiver of certain other customary closing conditions, including approvals from the Nasdaq and the Toronto Stock Exchange.
“At an implied valuation multiple of 1.9 times calendar year 2021 expected Adjusted EBITDA, we believe that the combined company represents a substantial valuation discount to Algoma’s peer group and a great value for Legato’s stockholders,” said David Sgro, Legato’s CEO.
Based in Sault Ste. Marie, Algoma is a fully integrated steel producer of hot and cold rolled steel products including sheet and plate with a current raw steel production capacity of an estimated 2.8 million tons per year.