It looks like the steel sector is about to get a big shake-up. On Sunday, U.S. Steel Corp. rejected a $7.3 billion buyout offer from rival steelmaker Cleveland-Cliffs Inc., but confirmed that it has received multiple offers from other interested bidders for parts or all of its business.
According to Reuters, Cleveland-Cliffs is determined to make this deal happen despite rejection from U.S. Steel, as they offered to pay $17.50 in cash and 1.023 shares of its own stock for each U.S. Steel share, implying a 42% premium to U.S. Steel’s closing share price on July 28 when Cliffs privately reached out to the company.
This proposed merger would create a global steelmaking giant and help it become a bigger competitor in an industry largely dominated by China. In any case, the news pushed U.S. Steel’s shares up 26% in early trading on Monday. U.S. Steel CEO David Burritt said in a statement, “At this juncture, we cannot determine whether your unsolicited proposal properly reflects the full and fair value of the Company.”
A combined company would be the largest steel producer in North America, the 10th-largest producer in the world, and a dominant supplier to the transportation sector, according to KeyBanc Capital Markets analyst Philip Gibbs. “We view the probability of this deal getting done without meaningful concessions as low,” Gibbs said.
On the other hand, Cleveland-Cliffs CEO Lourenco Goncalves remains optimistic. “Although we are now public, I do look forward to continuing to engage with U.S. Steel on a potential transaction, as I am convinced that the value potential and competitiveness to come out of a combination of our two iconic American companies is exceptional,” he said in a statement.
Citi analyst Alex Hacking thinks Cleveland-Cliffs may be the only logical acquirer for 100% of U.S. Steel. Despite worries over antitrust regulations, analysts at B. Riley are of the opinion that Cleveland-Cliffs is well positioned to make the most compelling offer.
Cleveland-Cliffs has already invested heavily in the steel industry in recent years with acquisitions of AK Steel and the U.S. business of ArcelorMittal in 2020, while U.S. Steel and Cleveland-Cliffs are the two only major unionized companies in the US steel industry. According to industry rankings and company reports, Cleveland-Cliffs produced 16.8 million tons of steel in 2021 while US Steel produced 11.2 million tons at its US operations and another 3.7 million tons in Europe and Nucor produced 21 million tons.
The outcome of this situation is currently uncertain, but it appears Cleveland-Cliffs is determined to make the most of an opportunity. With the potential to create a global steel titan, this could be a game-changing deal for the steel industry.