United States Steel Rejects Takeover Offer from Cleveland-Cliffs Inc. in Strategic Review

United States Steel Corp Rejects Takeover Offer From Cleveland-Cliffs Inc.

United States Steel Corp, one of the leading suppliers of steel products to the U.S. auto industry, has rejected a takeover offer from rival Cleveland-Cliffs Inc. that promised to create one of the world’s biggest steelmakers. Instead, U.S. Steel will begin a review of its strategic options.

Background and Offer Details

U.S. Steel, an icon of American industry with roots stretching back over a century, announced on Sunday a formal process to assess its alternatives after receiving approaches for parts or all of the business. About three hours later, Cliffs went public with its cash-and-share bid, valuing the company at about $7.25 billion based on closing prices on Friday, representing a 43 percent premium.

Cliffs submitted the proposal privately on July 28 and received a rejection letter on Sunday, with U.S. Steel calling the offer “unreasonable.” U.S. Steel confirmed the response but defended its decision, stating that Cliffs had refused to sign a non-disclosure agreement unless certain economic terms were agreed upon in advance.

Impact on the Auto Industry

The combined company would hold a powerful position as the primary supplier to the U.S. auto industry. In 2022, U.S. Steel shipments to the automotive and transportation segments increased almost 10 percent to 3.25 million tons, its largest single business segment. Similarly, Cleveland-Cliffs stated that automotive customers made up 31 percent of its revenue in 2022, up from 25 percent in 2021. A deal with U.S. Steel would catapult Cliffs into the ranks of the top global producers, a list currently dominated by China.

Furthermore, a combined company would have complete ownership of domestic iron ore reserves. U.S. Steel addressed this issue in its letter to Cliffs, stating that both sides need a better understanding to assess the antitrust risk involved in the proposal.

Cliffs has been an active dealmaker in recent years, acquiring AK Steel Holding Corp. and the U.S. business of European steel giant ArcelorMittal. These acquisitions established Cliffs as a key operator of traditional blast furnaces in the U.S. and gave it a significant presence in the profitable business of steelmaking for the car industry.

Demand Outlook

The bid comes at a time when U.S. Steel and other producers predict that domestic demand will benefit from green-energy infrastructure and manufacturing projects, with support from the Biden administration’s Inflation Reduction Act.

Additionally, the bid highlights the divide between traditional blast-furnace production of steel from iron ore and the more efficient, cost-effective, and lower-emission plants that remelt scrap and turn it into steel, known as electric-arc furnaces. Cliffs CEO Lourenco Goncalves, who lacks a footprint in electric-arc furnaces, and U.S. Steel’s CEO David Burritt, who has shifted the company’s focus toward modern plants, represent this dynamic.

Next Steps

U.S. Steel has initiated a strategic review and hired Barclays Capital Inc. and Goldman Sachs Group Inc. as financial advisers. There is no set deadline for the review, and it may not result in a transaction or other strategic outcome, according to the company.

Cliffs, on the other hand, remains interested in engaging with U.S. Steel regarding a potential transaction. The company’s advisers include Moelis & Company LLC, Wells Fargo, JPMorgan, and UBS, with Davis Polk & Wardwell LLP serving as its legal counsel.

Automotive News contributed to this report.

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