U.S. Steel shares jumped nearly 37% Monday after the company received two buyout offers, one from its rival Cleveland-Cliffs.
U.S. Steel said Sunday it rejected a $7.3 billion bid from Cleveland-Cliffs — a deal that would dramatically shake up Minnesota's iron ore industry.
A second bid for U.S. Steel — this one valued at $7.8 billion — came Monday afternoon from Esmark Inc., a privately held company based in suburban Pittsburgh.
U.S. Steel, long an anchor of Iron Range mining, is essentially in play, and Cleveland-Cliffs — the state's other taconite titan — will continue pursuing a deal. The United Steelworkers union, which heavily represents hourly workers at both firms, is backing Cliffs' bid for U.S. Steel.
Still, as at least one analyst noted Monday, any deal between Cliffs and U.S. Steel would likely face tough antitrust scrutiny from U.S. regulators, partly due to its effect on the ownership of iron mines.
"We believe the offer from [Cliffs] is more than fair … but we view the probability of this deal getting done without meaningful concessions as low," wrote Philip Gibbs, a KeyBanc Capital Markets analyst.
Cliffs and U.S. Steel control all six of the state's iron ore operations. Cliffs, which also has a long history in Minnesota, fully owns three of the six taconite mines, and U.S. Steel owns two. They jointly own Hibbing Taconite, with Cliffs' share being 85% and U.S. Steel's 15%.
Pittsburgh-based U.S. Steel on Sunday announced it would "initiate a formal review process … to evaluate strategic alternatives for the company," which, translated from corporate speak, means all or parts of the company may be sold.
In a press release, U.S. Steel said it has received "multiple proposals" ranging from the acquisition of "certain production assets to consideration for the whole company."
Soon after U.S. Steel's announcement, Cleveland-Cliffs on Sunday disclosed that on July 28, it offered to buy U.S. Steel for $17.50 a share in cash plus 1.023 shares of Cliffs' stock per U.S. Steel share. The offer values U.S. Steel's stock at $35 a share, a 42% premium over its closing price Friday, Cliffs said.
Esmark, an industrial company led by former U.S. Steel executive James Bouchard, also bid $35 per share, but all in cash. Esmark is a leading processor of flat-rolled steel and manufacturer of tin plate.
Cleveland-based Cliffs also said it had received a letter from U.S. Steel saying the offer was "unreasonable," but that Cliffs CEO Lourenco Goncalves still wants to make a deal.
"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," Goncalves said in a press statement.
U.S. Steel did not acknowledge Cliffs in its initial announcement Sunday. But after Cliffs went public with its intentions, U.S. Steel disclosed it couldn't properly evaluate the offer because Cliffs wouldn't sign a non-disclosure agreement (NDA).
"We were shocked to receive a letter on Friday, August 11, stating that you refused to sign the nearly completed NDA unless we agree to the economic terms of your proposal in advance," U.S. CEO Steel David Burritt wrote in a letter to Goncalves.
Burritt wrote that U.S. Steel's board couldn't accept Cliffs half-cash-half-stock offer "without conducting a thorough and completely customary due diligence process. … Doing otherwise would be tantamount to accepting a price without knowing what it in fact represents."
U.S. Steel's stock closed Monday at $31.08, up $8.36. Cliffs shares closed at $15.98, up $1.29 or nearly 9%.
Any merger of U.S. Steel and Cliffs would effectively create a monopoly on Minnesota iron ore — a primary reason that KeyBanc's Gibbs called the deal "unlikely" in a research note.
"Most glaringly, the pro forma company would effectively control 100% of the U.S. iron ore market."
Moreover, Cliffs and U.S. Steel would have the largest share of the U.S. automobile steel business, particularly exterior steel for vehicles — "likely drawing the ire" of automotive original equipment manufacturers, he wrote.
The combined company also would be "the only meaningful supplier to the very tight electrical steel market." Electric steel is used in electric motors and electricity transformers.
U.S. Steel, in its letter to Cliffs released Sunday, wrote both companies would have to address "antitrust risk" from a merger.
Cliffs and U.S. Steel dominate the traditional U.S. steelmaking industry, which turns taconite, coal and limestone into metal. But the blast furnace business accounts for less than 20% of the overall U.S. steel market.
Mills that use electricity to fashion new steel from melted scrap account for the rest, and both U.S. Steel and Cleveland-Cliffs have also moved into that market.
A combined Cliffs and U.S. Steel would be, by shipments, the nation's largest steel company, topping North Carolina-based Nucor, the king of electricity-based steelmaking, according to a Cliffs' filing Monday with federal securities regulators.
Cliffs and U.S. Steel together would constitute the world's tenth-largest steel company, the filing said.
The United Steelworkers will "unequivocally endorse" Cliffs' bid for U.S. Steel, the union's International President Thomas Conway wrote in a letter that Cliffs filed with federal securities regulators.
"Moreover, the USW will not endorse anyone other than Cliffs for such a transaction."
U.S. Steel, the nation's first company capitalized at over $1 billion, has a storied place in Iron Range annals — and in U.S. industrial history generally.
Financier J.P. Morgan created the company in 1901, melding Andrew Carnegie's steel making empire with two other steel companies and John D. Rockefeller's extensive iron ore interests in Minnesota.
U.S. Steel was long the largest miner on the Iron Range, and today it owns Minntac in Mountain Iron and Keetac in Keewatin.
Cleveland-Cliffs' history on Minnesota's Iron Range dates to at least the 1910s. Cliffs long operated and partially owned iron mines, but today fully owns United Taconite in Eveleth, Minorca in Virginia and Northshore Mining in Babbitt and Silver Bay.
Under Goncalves, Cliffs vaulted into steelmaking bigtime in 2020, buying AK Steel for $1.1 billion and the U.S. operations of ArcelorMittal for $1.4 billion. After the deals, Cliffs' revenue jumped from $5 billion in 2020 to $23 billion last year.
U.S. Steel had $21 billion in revenue in 2022.