Cleveland-Cliffs, the largest flat-rolled steel producer in North America, announced on Sunday that it had made a cash-and-stock offer to acquire U.S. Steel, the second-largest steelmaker in the country, for $7.3 billion. The offer valued U.S. Steel at $35 per share, which represented a 43% premium to its closing price on Friday.
Cleveland-Cliffs said that the proposed merger would create the largest steel producer in North America and the 10th largest in the world, with a combined annual production capacity of 28 million tons of steel. The company also said that the deal would generate significant synergies and cost savings, as well as enhance its product portfolio and customer base.
Cleveland-Cliffs’ CEO Lourenco Goncalves said in a statement that the offer was “compelling and superior” to any other alternative for U.S. Steel shareholders, and that he was confident that they would “recognize the value and merits of this transaction”.
U.S. Steel rejects the offer and initiates a formal review process
However, U.S. Steel rejected Cleveland-Cliffs’ offer as being “unreasonable” and “not in the best interests” of its shareholders, employees, customers, and communities. The company said that it had received multiple unsolicited proposals that ranged from the acquisition of certain production assets to consideration for the whole company, and that it had decided to initiate a formal review process to evaluate its strategic alternatives.
U.S. Steel’s CEO David Burritt said in a statement that the company was “committed to maximizing value for all of our stakeholders”, and that it had “invited Cleveland-Cliffs to participate in our review process along with other interested parties”. He also said that U.S. Steel had “a clear and compelling strategy” to achieve profitable growth and enhance its competitive position in the global steel industry.
U.S. Steel shares soar while Cleveland-Cliffs shares fall
Following the news of the offer and the rejection, U.S. Steel shares soared 29% in premarket trading on Monday, reaching $27.92 per share, while Cleveland-Cliffs shares fell 6.1% to $14.69 per share. Despite the surge, U.S. Steel shares were still trading well below the offer price, indicating some investors’ skepticism about the likelihood of a deal at that level.
The steel industry has been facing challenges from rising raw material and energy costs, as well as increased competition from China, which produces more than half of the world’s steel output. However, steel prices have also been boosted by strong demand from various sectors, such as construction, automotive, and infrastructure.
Both Cleveland-Cliffs and U.S. Steel have been pursuing acquisitions to expand their scale and diversify their product offerings. Cleveland-Cliffs bought AK Steel and ArcelorMittal USA in 2020, while U.S. Steel acquired Big River Steel earlier this year.
