US Steel Brushes Off Cleveland-Cliffs' $35 Per Share Offer: Analyst Says Deal Less Likely To Close Without 'Meaningful Concessions'

Pittsburgh-based United States Steel Corp. X late Sunday rejected a buyout offer from rival steel manufacturer Cleveland-Cliffs Inc. CLF but welcomed the latter to participate in a formal review process.

What Happened: U.S. Steel said it invited Cleveland-Cliffs to join in a formal strategic review process initiated by the board. The announcement comes as U.S. Steel disclosed an approach by Cleveland-Cliff on July 2023 and subsequently on Aug. 11 with an updated proposal regarding a buyout.

Cleveland-Cliffs said in a separate release that it had approached U.S. Steel on July 28 to buy all the outstanding shares of the latter for $17.50 in cash and 1.023 shares of its stock. The total transaction value amounted to $35 per share compared to the $24.62 at which U.S. Steel traded ahead of the offer, marking a premium of 42%. U.S. Steel promptly rejected the offer, its rival said.

Cleveland-Cliff has a market cap of $7.6 billion compared to U.S. Steel’s $5.2 billion.

Offer Spurned: U.S. Steel CEO David Burritt said in a letter addressed to the rival company's CEO Lourenco Goncalves that Cleveland-Cliffs refused to sign the nearly completed non-disclosure agreement unless US Steel agreed to the economic terms of the proposed deal.

“As you well know, our Board – or any board – could not, consistent with its fiduciary duties, agree to a proposal of which 50% is represented by your stock without conducting a thorough and completely customary due diligence process, to evaluate the risks and potential upsides and downsides inherent in the transaction, including the stock component,” said Burritt.

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He also said the board can't agree to Cleveland-Cliff's headline price without appropriate discussion regarding his company's contribution to the value of the combined businesses.

“Pushing our Board to do so is in essence a demand that it breach its fiduciary duties,” he added.

Burritt also said at this juncture it isn't possible to determine whether Cleveland's Cliff's unsolicited proposal reflected the “full and fair value” of the company. Therefore, the board “has no choice but to reject your unreasonable proposal,” he said.

Analyst Says Deal Less Likely: KeyBanc Capital Markets analyst Philip Gibbs said, “We believe the offer from CLF is more than fair and the proforma company would create the largest steel company in North America, but we view the probability of this deal getting done without meaningful concessions as low."

Among the pushbacks against the consummation of the deal is the monopoly position of the combined company in the U.S. iron ore market, the analyst said. He also noted that automotive OEMs won't welcome the deal as Cleveland-Cliffs is currently the largest supplier of automotive-grade steel in the USA, while X shipped more than 20% of its volumes to the auto/transportation market in 2022.

Gibbs also flagged regulatory pushbacks due to the market dominance the combined company may have in the U.S. carbon sheet market.

U.S. Steel ended Friday’s session at $22.72, up 0.98%, and Cleveland-Cliffs edged down 0.07% to $14.69, according to Benzinga Pro data.

Related Link: X Gonna Give It To EVs: How U.S. Steel Is Catering To Growing Auto Industry

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