US Steel Rejects Cleveland-Cliffs Deal, Investors Keep the Faith

Photo by Goodwin Steel Castings under CC BY-SA 2.0

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It’s still sounding like there’ll be a metal marriage. Cleveland-Cliffs, America’s second-largest steel maker, announced Sunday that it offered to purchase US Steel, valuing the company at more than $7 billion.

While the unsolicited proposal was rejected, US Steel’s share price skyrocketed on the offer, in the hopes that some type of deal could still be on the table.

Metal Heads

US Steel, founded in 1901 by financial icons including JP Morgan and Andrew Carnegie, played an important role in industrializing America. Its steel helped build countless bridges and rail lines as well as New York’s Flatiron building, Willis Tower in Chicago, and even the New Orleans Superdome.

Though no longer the biggest domestic player — Nucor holds the top spot, producing 21 million tons of steel last year — US Steel nevertheless made a combined 16 million tons in 2022. That said, a combination of the two still wouldn’t crack the global top 5 in annual production.

US Steel’s share price closed nearly 37% higher on Monday, but negotiations have been far from perfect:

  • Cleveland-Cliffs offered to pay US Steel $17.50 a share in cash and 1.023 shares of Cliffs stock for each US Steel share. The proposition valued each US Steel share at $32.53, a 43% premium to its closing price last Friday. On Monday, privately held Esmark announced an all-cash $35/share offer for the company, possibly setting up a bidding war.
  • US Steel asked for a nondisclosure agreement that would allow it to examine Cleveland-Cliffs’ books to analyze the deal. When Cleveland-Cliffs denied access, US Steel rejected the deal, reportedly calling the deal “unreasonable.”

Is Steel OK?: Steel prices bounced back as the pandemic progressed but began to slide in tandem with the declining economy in China, the planet’s top steel producer and all-around manufacturer. However, prices may stabilize for the foreseeable future. Trading Economics estimated that steel rebar futures prices will only decline 4.5% from their current level. And US demand is likely to go up to help build out green-energy infrastructure and manufacturing projects supported by the Biden administration’s Inflation Reduction Act.