With the price of steel booming, a 100-year-old steelmaker is going public with a PSPC merger

The SPAC agreement: Algoma Steel goes public in a PSPC merger with Legato Merger Corp (NASDAQ: LEGO) valuing the company at an enterprise value of $ 1.7 billion.

The transaction values ​​Algoma Steel at 1.9x estimated Adjusted EBITDA of $ 901 million.

Algoma Steel also plans to list on the Toronto Stock Exchange after the merger.

Current shareholders of Legato Merger Corp will own 19% of Algoma Steel once the merger is completed.

About Algoma Steel: Founded in 1902, Algoma Steel is a manufacturer of hot and cold steel products. The company produces advanced grades of steel for industries such as automotive, shipbuilding, energy, mining, defense and manufacturing.

The company is the only plate producer in Canada and is home to the low cost direct tape production complex.

Algoma Steel produces approximately 2.8 million tonnes per year and is a key supplier to customers in Canada and the Midwestern region of the United States.

The Algoma plant is one of the cheapest hot-rolled sheet producers in North America. The company is also focused on sustainable efforts in the manufacture of steel.

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Future growth: Steel prices have skyrocketed in 2021, driving strong returns for steelmaker stocks.

Actions of Steel Dynamics Inc (NASDAQ: STLD) are up 68% year-to-date, more than 150% from a year ago, and shares of United States Steel Corporation (NYSE: X) are up 45% year-to-date, over 230% from a year ago.

Algoma was acquired in 2007 for $ 1.6 billion by Indian conglomerate Essar Group. The company completed a restructuring after the drop in the price of steel.

Algoma received a credit rating improvement from Moody’s in February due to the price of steel and expected positive free cash flow.

Lego price action: Shares of Legato Merger Corp are up 2.27% to 9.91 on Tuesday afternoon at the release.

Disclosure: The author is long LEGOU and STLD.

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(Photo: Algoma Steel)