U.S. Steel shares jump after unsolicited bid from Cleveland-Cliffs

Shares of U.S. Steel jumped about 33% in mid-day trade on Monday, after the steelmaker rejected a $7.3-billion buyout offer from Cleveland-Cliffs but said it would review its options following “multiple unsolicited proposals” from other unnamed bidders.

Even though U.S. Steel has so far rejected entreaties from Cleveland-Cliffs, shares surged on Monday, reflecting expectations that the Pittsburgh-based steel company could be acquired after several consecutive quarters of falling revenue and profit owing to high raw material and energy costs.

The U.S. Steel stock traded at $30.23 in afternoon trade, lower than the offer from Cleveland-Cliffs, the largest flat-rolled steel producer in North America, as the investors doubt if a deal will happen at that price.

The company on Sunday offered to buy U.S. Steel in a cash-and-stock deal valued at $35 per share, or a 43% premium to U.S. Steel’s last closing price.

Shares of Cleveland-Cliffs rose about 10% in afternoon trade.

U.S. Steel, however, said it has invited Cleveland-Cliffs to be a part of the review process.

“CLF appears like the only logical acquirer for 100% of US Steel,” said Citi analyst Alex Hacking, adding that the company is worth more to Cleveland-Cliffs than anyone else.

The United Steelworkers (USW) union also supports North American steel producer Cleveland-Cliffs’ bid to acquire rival U.S. Steel Corp and says the company is the best strategic buyer, the union’s international president, Thomas Conway, told Reuters in an interview.

If the two firms were to combine, it would be the largest steel producer in North America, the 10th-largest producer in the world, and a dominant supplier to the transportation sector, KeyBanc Capital Markets analyst Philip Gibbs said in a note.

“We view the probability of this deal getting done without meaningful concessions as low,” Gibbs added.

Despite concerns around antitrust regulations, analysts at B. Riley believe that Cleveland-Cliffs is “well positioned” to offer the most compelling economics.

NYMEX U.S. Midwest Hot-rolled steel futures have fallen about 9% so far this year, but remain above pre-pandemic levels.

Cleveland-Cliffs has been betting on acquisitions to bolster growth and take on competition from China – it bought AK Steel and the U.S. business of ArcelorMittal in 2020.

The company went public with its offer after U.S. Steel rejected the bid as being “unreasonable”, announcing a formal review process instead, and said it received multiple bids for parts or all of its business.

The U.S. steel industry is protected by 25% tariffs imposed by former President Donald Trump in 2018 that have largely been kept in place by the Biden Administration.

The tariffs imposed on steel imports, mainly from China, increased U.S. domestic production and initially led to a drop in steel prices. However, increased demand left manufacturers grappling with shortages of the widely used metal and prices rose.

Source : Reuters