Iron-ore miner Cleveland-Cliffs Inc. (NYSE: CLF) announced Tuesday morning that it has entered a definitive merger agreement to acquire AK Steel Holding Corp. (NYSE: AKS) in an all-stock deal valued at $1.1 billion. Cliffs, as the company is known, will pay each AK Steel shareholder 0.4 shares of Cliffs stock for each share of AK steel they own.

The payment ratio implies a cash price of $3.36 per share of AK Steel, a premium of 16% to the steelmaker’s closing price on Monday. The total enterprise value of the deal is approximately $3 billion, indicating that Cliffs will assume about $1.9 billion in AK Steel debt. Once the deal is completed, Cliffs shareholders will own about 68% of the combined company and AK Steel shareholders will own the other 32%.

Cliffs is North America’s largest producer of iron ore pellets, and AK Steel is a producer of flat-rolled carbon, stainless, and electrical steel products.

Since May of 2008, when AK Steel posted an all-time high share price of around $73, shares have lost more than 90% of their value, with the biggest drop occurring by November of 2008. Cliffs reached a high of $108 a share in May of 2008, and it too has lost about 90% of its value since that all-time peak.

Lourenco Goncalves, Cliffs board chair and CEO, commented:

The pro forma Cliffs will be a vertically integrated steel company that is expected to drive improved profitability for existing Cliffs and AK Steel shareholders and is well-positioned to serve both the blast furnace and electric arc furnace segments. In addition, Cliffs’ existing strong balance sheet and self-sufficiency in pellets for the combined company provide flexibility to pursue additional growth opportunities, including the potential future utilization of the blast furnace in Ashland to produce merchant pig iron, an opportunity neither company could pursue on a standalone basis.

Goncalves will head the combined company and AK Steel CEO Roger Newport will retire. Newport commented on the transaction:

We believe this transaction is a compelling opportunity for AK Steel shareholders to participate in the substantial upside potential of what will be a premier vertically integrated producer of value-added iron ore and steel products with significant scale and diversification.

The transaction is expected to close in the first half of 2020 and is subject to approval by shareholders of both companies and other customary closing conditions. Following the completion of the deal, AK Steel will become a wholly owned, direct subsidiary of Cliffs and retain its own branding and corporate identity.

Cliffs said it has obtained a $2 billion financing commitment from Credit Suisse “in connection with a new Asset Backed Loan and the refinancing of AK Steel’s 2023 senior secured notes.”

Judging by trading action in Tuesday’s premarket, investors wish that Cliffs had not diluted their shares any further. The miner’s stock traded down more than 11.5% at $7.43, after closing Monday up more than 5% at $8.41. The stock’s 52-week range is $6.59 to $12.26, and the 12-month consensus price target is $8.63.

AK Steel shareholders have managed to curb their enthusiasm for the deal as well, lifting the share price by a mere 2% to $2.95, just slightly better than Monday’s closing price of $2.89. That could indicate lack of faith that the deal will be acceptable to Cliffs shareholders, including three investment firms that together own more than 30% of the company: BlackRock (about 15%), Vanguard (over 10%) and State Street (just over 5%). The announcement would likely have included a reference to an agreement by any one of these to vote in favor of the transaction.

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