The Canadian parent company of privately held Algoma Steel Inc. and Legato Merger Corp. today jointly announced that they have entered into a definitive merger agreement that will result in Algoma becoming 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.
In a press release, Algoma said that as a publicly traded company, it will “continue to execute its growth strategies under the leadership of Algoma’s current management,” with a Board of Directors that will include six directors designated by Algoma, three directors designated by Legato and one jointly nominated.
Michael McQuade, CEO of Algoma, commented, “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.”
McQuade added, “We continue to evaluate our strategic options, including the potential for a substantial investment in electric arc steelmaking.”
Assuming no redemptions by Legato stockholders, the all-stock transaction implies a pro forma enterprise value of more than $1.3 billion at closing and approximately $1.7 billion inclusive of contingent consideration. In addition to the approximately $236 million held in Legato’s trust account, various investors have committed to participate in the transaction through a PIPE of $100 million at $10.00 per share. The PIPE includes significant investments from strategic steel industry participants, as well as investments from Legato’s Chairman, TD Wealth Management, Vantage Asset Management, JC Clark, Hite and Goodwood Fund.
Under the terms of the merger 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 merger agreement provides that Algoma’s existing shareholders and management team will, collectively, own 75 million Algoma common shares on a fully-diluted basis, with an implied value of $750 million at $10 per share.
The merger agreement also provides that Legato stockholders will receive one Algoma common share for each share of Legato common stock and that each Legato warrant will be assumed by Algoma and become exercisable to purchase one Algoma common share at $11.50 per share. The transaction includes contingent consideration of up to 37.5 million Algoma common shares payable to Algoma’s existing shareholders and management team if certain Adjusted EBITDA targets for calendar year 2021 or stock price targets in the five years following closing are achieved.
Following completion of the transaction and assuming all of the contingent consideration is paid, Algoma’s current shareholders and management team will hold approximately 74 percent of the combined company’s outstanding common shares, PIPE investors will hold approximately 7 percent of the combined company’s outstanding common shares and Legato’s current stockholders will hold approximately 19 percent of the combined company’s outstanding common shares.
Legato’s Board of Directors has approved the merger agreement and resolved to recommend that Legato stockholders approve and adopt the merger agreement and the transaction. Algoma has received both shareholder approval and Board of Director approval for the merger agreement.
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.