Pittsburgh-based U. S. Steel said Monday that it has rejected a $7.3 billion buyout proposal from Cleveland-Cliffs and has instead opted to initiate a formal review process to “evaluate strategic alternatives” for the company.
In a letter to stockholders, the company said it was making significant progress in transforming the company into a “customer-centric, world-competitive Best For All steelmaker” and was entering into the strategic review after receiving multiple unsolicited proposals.
“U. S. Steel’s Board and management team are committed to maximizing value for our stockholders, and to that end, we have commenced a comprehensive and thorough review of strategic alternatives,” David B. Burritt, U. S. Steel’s President, Chief Executive Officer and member of the Board of Directors, said. “This decision follows the Company receiving multiple unsolicited proposals that ranged from the acquisition of certain production assets to consideration for the whole Company. The Board is taking a measured approach to considering these proposals, including seeking more information in order to evaluate proposals that are preliminary and subject to ongoing due diligence and review.”
In late July, U. S. Steel received a proposal from Cleveland-Cliffs of cash and stock to acquire all of U. S. Steel’s outstanding shares. However, U. S. Steel’s board rejected the proposal because it was not able to evaluate the proposal because Cleveland-Cliffs refused to engage in the process to assess valuation and certainty unless U.S. Steel agreed to the economic terms of the proposal in advance.
U. S. Steel confirmed that it has offered to allow Cleveland-Cliffs to participate in the strategic review process.
“U. S. Steel has been on a strategic journey executing a compelling transformation, building out best-in-class EAF steelmaking and finishing capabilities, while reducing our carbon footprint,” Burritt said. “Our balance sheet is stronger than ever, and we are delivering resilient cash flow while prioritizing direct returns to stockholders. The interest demonstrated by the unsolicited proposals received to date is a validation of U. S. Steel’s strategy and successful track record of execution.”
A merger of Cleveland-Cliffs and U. S. Steel would have created a company that would have been one of the top 10 largest steelmakers in the world and one of the top four outside of China.
Lourenco Goncalves, Chairman, President and Chief Executive Officer of Cleveland-Cliffs said in a statement that Cleveland-Cliffs was willing to move forward with the proposal, and that U.S. Steel’s rejection of it gave rise to his company’s decision to make the proposal public. Cleveland-Cliffs had offered $35 per share ($17.50 in cash and 1.023 shares of Cleveland-Cliffs stock) for U. S. Steel’s outstanding stock, a 43 percent premium to U. S. Steel’s share price as of August 11.
Under the terms of the United Steelworkers’ (USW) collective bargaining agreement with U. S. Steel, the USW has a right to counter the proposal. USW affirmed in writing it would not counter Cleveland-Cliffs proposal, and instead endorses it.
“The numerous benefits we are excited about include the combination of our complementary U. S.-based footprint, our ability to leverage our in-house metallics capabilities, and enhancing our shared focus on emissions reduction. With these benefits, combined with our experience of extracting meaningful synergies from previous acquisitions, we expect to create a lower-cost, more innovative, and stronger domestic supplier for our customers across all segments,” Goncalves said. “Furthermore, the transaction provides immediate multiple expansion to U. S. Steel stockholders, while simultaneously de-risking U.S. Steel’s future capital spend with our substantial expected free cash flow and very healthy balance sheet. We also plan to ramp up capital returns to shareholders and implement a dividend upon completion of the transaction.”