REGIONAL— U.S. Steel has rejected a $7.3 billion buyout offer from rival Cleveland-Cliffs that would have made Cliffs the predominant company in the U.S. steel sector. But U.S. Steel, which owns and operates the Minntac and Keetac taconite facilities on the Iron Range, has begun reviewing what it calls “strategic alternatives” after receiving several unsolicited offers.
The proposed buyout and possible related future developments could have major repercussions for the Iron Range economy.
U.S. Steel and Cliffs had been actively exploring Cliffs’ July 28 buyout offer, but those discussions broke down after Cliffs demanded that U.S. Steel agree to its terms before Cliffs would allow U.S. Steel to conduct its necessary due diligence.
The Cliffs proposal would have purchased outstanding U.S. Steel stock for $17.50 per share in cash and 1.023 shares of Cliffs stock. Cliffs claims their offer amounted to $35 per share at the time of their offer. Cliffs stock was trading at just under $16 a share as of this week, making the offer worth just under $34 per share. That would have provided U.S. Steel shareholders with a substantial premium over the company’s stock price at the time of the offer, which was hovering just under $25 a share. U.S. Steel’s stock price jumped sharply, however, on the news of the buyout offer. As of Monday, the company’s stock was trading at just over $30 per share.
The two sides had reportedly been close to signing a non-disclosure agreement, or NDA, under which the parties would have undertaken more detailed negotiations and fact-finding. In an Aug. 13 letter to Cliffs CEO Lourenco Goncalves, U.S. Steel CEO David Burritt wrote: “At my and the board’s direction, our advisors indicated our willingness to enter into an NDA with you on Aug. 7, 2023, so that we could have further clarity on several key issues, including valuation of the stock component of your proposal, regulatory risk and timing as well as the prospects for the combined company. We discussed with your counsel questions that would need to be better understood in order for both of us to appropriately assess the antitrust risk of your proposal; and while your counsel agreed that this would need to be analyzed, and was amenable to our proposal to work on this together, this still has not happened. After multiple conversations about, and our team’s engagement in good faith negotiations over the terms of the NDA, we were shocked to receive a letter on Friday, August 11th stating that you refused to sign the nearly completed NDA unless we agree to the economic terms of your proposal in advance.
“As you well know, our Board – or any board – could not, consistent with its fiduciary duties, agree to a proposal of which 50% is represented by your stock without conducting a thorough and completely customary due diligence process, to evaluate the risks and potential upsides and downsides inherent in the transaction, including the stock component. Doing otherwise would be tantamount to accepting a price without knowing what it in fact represents. Nor could our Board agree to your “headline price” without appropriate discussion – under NDA – regarding the contribution of U. S. Steel to the value of the combined businesses. Pushing our Board to do so is in essence a demand that it breach its fiduciary duties.”
While the deal with Cliffs may be on hold for now, U.S. Steel indicated in an Aug. 13 announcement that it would be considering a number of unsolicited offers to determine the one that provides the best value for the company’s shareholders. Burritt said the interest in the company provides “a validation of U.S. Steel’s strategy” of transforming its steel-making capacity to a stronger reliance in electric arc furnaces and finishing capabilities.
Goncalves argues that the acquisition of U.S. Steel would provide benefits to the domestic steel industry, creating “a lower-cost, more innovative and stronger domestic supplier for our customers.” The buyout would also create the largest steel-producing company in the U.S. and one of the world’s top four producers outside of China.
In a letter posted to Cliffs website, United Steelworkers International president Thomas Conway, indicates his union’s support of Cliffs’ offer and indicated that the union would not exercise its contractual right to counteroffer any proposal to acquire a controlling interest in U.S. Steel. “It will, rather, unequivocally endorse such a transaction,” he said. Cliffs currently employs about 14,000 members of the Steelworkers, compared to 11,000 members who work for U.S. Steel.
“Maintaining American leadership in the steel industry is critical to many vital parts of the U.S. economy,” wrote Conway in his letter, dated Aug. 3. “The USW feels that Cliffs is the single steel producer in the best position to ensure that U.S. based manufacturing remains strong in this country with the support of the USW and its represented workforce.”