On Sunday, August 13, U.S. Steel Corporation announced that it had rejected a $7.3 billion acquisition offer from its competitor, Cleveland Cliffs, citing the latter's push for acceptance without proper due diligence.
In a letter addressed to Cleveland Cliffs' CEO, Lourenco Goncalves, U.S. Steel's CEO David Burritt communicated that at present, it's challenging to determine whether the unsolicited acquisition offer truly represents the full and fair value of U.S. Steel. Consequently, the board had no choice but to decline what they deemed an unreasonable takeover proposal.
Earlier that Sunday, Cleveland Cliffs publicized their bid for U.S. Steel at $7.3 billion, breaking down to $17.50 cash per share and 1.023 shares of Cliffs stock. This values the proposition at $35 per share, notably higher than U.S. Steel's closing price of $22.72 on Friday. Following the rejection by U.S. Steel, Cleveland Cliffs decided to disclose the non-public offer.
Market Reaction
After news broke of U.S. Steel's decision to decline the takeover, the stock prices of both companies saw a considerable surge on Monday. U.S. Steel's shares experienced a significant increase, soaring over 40% and breaking past the $30 mark. Meanwhile, Cleveland Cliffs also experienced growth, with shares rising more than 10%.
Burritt disclosed earlier that U.S. Steel had received multiple unsolicited offers and had launched "a comprehensive review of strategic alternatives." U.S. Steel anticipates more takeover bids in the pipeline, although they stressed that there's no guarantee any deal will be solidified.
According to Burritt, these offers validate U.S. Steel's transformational strategy, which includes bolstering its electric arc furnace steelmaking and advanced processing capacities.
Strategic Intent
Goncalves highlighted that the initial acquisition proposition, put forth on July 28, indicated that the merged entity would rank among the world's top ten steel manufacturers. The deal aimed to present customers with a more cost-effective, innovative, and robust domestic supplier. Even with U.S. Steel's refusal, Cleveland Cliffs remains committed to achieving this objective through industry acquisitions.
Goncalves added that their proposal secured the backing of the United Steelworkers union. The union boasts 14,000 members at Cleveland Cliffs and 11,000 at U.S. Steel. A support letter published on the company's website praises Cleveland Cliffs for not initiating layoffs during their 2019 acquisition of AK Steel and the 2020 takeover of ArcelorMittal, emphasizing the company's dedication to maintaining a strong manufacturing presence in the country.
Cleveland Cliffs stands as North America's leading flat-rolled steel and iron producer. Founded in 1901 by luminaries like J.P. Morgan and Andrew Carnegie, U.S. Steel Corporation has long symbolized American industrialization. However, recent years have seen its stock underperform due to fluctuating steel prices.
