(Bloomberg) — U.S. Steel rejected a takeover bid from rival Cleveland-Cliffs Inc. which promised to create one of the world’s largest steelmakers, and would begin to review its strategic options instead.
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US Steel, an American industry icon with roots dating back more than a century, on Sunday announced a formal process for evaluating its alternatives after receiving multiple approaches for parts or all of the business. Then about three hours later, Cliffs announced its cash offer and purchase, which values the company at about $7.25 billion based on Friday’s closing prices, which is a 43% premium.
Cleaves said she made the proposal privately on July 28 and received a rejection letter on Sunday, calling the offer “unreasonable”. And still ready to get more involved.
Traditionally a prospector of iron ore rather than a maker of steel, Cliffs has been the most active dealmaker in the American industry in recent years—first acquiring AK Steel Holding Corp. , then bought the US business of European steel giant ArcelorMittal. The purchases made Cliffs the leading operator of conventional furnaces in the United States, and gave it a formidable foothold in the highly profitable automobile steelmaking business.
A deal with US Steel would catapult Cliffs into the ranks of the world’s top steel producers, a list dominated by China. The combined company will have a strong position as a primary supplier to the automotive industry, as well as ownership of 100% of the local iron ore reserves.
The bid comes at a time when producers including US Steel expect domestic demand will benefit from green energy infrastructure and manufacturing projects, bolstered by the law to cut inflation.
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But it also highlights one of the key dynamics in the global steel industry: the gap between traditional blast furnaces producing steel from iron ore, and the more efficient, cost-effective, low-emissions plants that remelt scrap into steel called electric arc furnaces.
Cliffs CEO Lourenco Goncalves, who is known for his combative personality and never shy away from making his opinions public, still has a small footprint in electric arc furnaces.
However, US Steel, whose roots go back to 1901 when J. merged toward more modern plants.
Porritt, who took over the then-struggling metals producer in 2017, bought Big River Steel in Arkansas and expects to inject an additional $3 billion into the operation by 2024 to double its capacity. The bet has paid off, as the company’s shares have more than doubled since the end of 2019, although the stock is down 9.3% this year. Cliffs is down 8.8% in 2023.
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Ohio-based Cliffs said Sunday it offered to pay $17.50 in cash and 1,023 of its own shares for each U.S. steel share. That means a value of $32.53 per share as of Friday’s close, a 43% premium to US Steel’s last closing price of $22.72. The Pittsburgh-based company is valued at approximately $7.25 billion.
“Although we are now public, I look forward to continuing to engage with US Steel in a potential transaction, as I am convinced that the potential value and competitiveness emerging from the combination of two iconic US companies is exceptional,” Goncalves said in the statement.
US Steel has appointed Barclays Capital and Goldman Sachs as financial advisors for its strategic review. The steelmaker has not set a deadline for completing the review, the company said in its statement, and the process may not lead to a deal or other strategic outcome.
Cliffs is advised by Moelis & Company LLC, Wells Fargo, JPMorgan, and UBS, and Davis Polk & Wardwell LLP serves as its legal counsel.
(Updates with stock price performance, Cliffs Advisors.)
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