US Steel explores options after rejecting $7.3 billion offer from Cleveland-Cliffs

Steel workers work at US Steel Granite City in Granite City, Illinois, US, May 24, 2018. REUTERS/Lawrence Bryant/File Photo

Aug 13 (Reuters) – United States Steel Corp ( XN ) began a formal review of its strategic options on Sunday after rejecting an offer to take over rival steelmaker Cleveland-Cliffs Inc ( CLF.N ).

Ohio-based Cliffs’ unsolicited cash and stock offer values ​​US Steel at about $7.3 billion, a 43% premium to its closing price on Friday.

Cliffs made its offer public after US Steel rejected the bid as “unfair” and instead announced a formal review process, saying the company had received multiple bids for parts or all of its businesses.

“Cliffs is compelled to make its offer public in the direct interest of all American Steel shareholders, and that Cliffs is prepared to engage in the offer immediately,” Cliffs said in a statement.

Cliffs said it offered to pay $17.50 in cash and 1.023 shares of its own stock for each US Steel share, representing a 42% premium to US Steel’s closing stock price on July 28, Cliffs said in a private filing with the company.

A merger between Cliffs and US Steel, which currently has a market capitalization of about $7.5 billion, will create a global steelmaking company that will help it better compete in an industry largely dominated by China.

Cliffs’ approach comes after US Steel posted its fifth straight quarter of profit declines and fourth quarter of revenue declines.

Despite its second-quarter earnings beating analysts’ estimates, US Steel shares were trading at a weak price-to-earnings ratio of 5.7, below the sector average of 9.0, and its shares are down about 9.3% year to date.

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Cliffs has been one of the most acquisitive players in the industry, buying AK Steel Holding Corp in 2020 and the US business of steelmaker ArcelorMittal in the same year.

“Even though we are now public, I look forward to continuing to engage with US Steel in a potential transaction because I strongly believe the value and competitiveness to emerge from the combination of our two iconic American companies is exceptional,” he said. Lorenzo Goncalves, Chief Executive Officer, Cliffs.

Cliffs said its proposal to acquire US Steel has the support of the United Steelworkers Union, North America’s largest steel union.

Cliffs said it has also lined up debt financing for the proposed deal from several banks. The company has selected Moelis & Company LLC, Wells Fargo ( WFC.N ), JPMorgan ( JPM.N ) and UBS as its financial advisors, with Davis Polk & Wardwell LLP serving as the company’s legal counsel.

In a separate statement late Sunday, US Steel confirmed it had received an offer from Cliffs and other interested parties.

“US Steel was unable to properly evaluate the project because Cleveland-Cliffs refused to engage in the necessary and routine process to evaluate valuation and feasibility unless US Steel agreed in advance to the economic terms of the proposal,” US Steel said.

US Steel has appointed Barclays Capital ( BARC.L ) and Goldman Sachs Group ( GS.N ) as its financial advisors, with Milbank LLP and Wachtell, Lipton, Rosen & Katz acting as its legal advisors.

Akansha Khushi and Jyoti Narayan report in Bangalore; Editing by Paul Simao, Anirban Sen, Chris Rees and Sonali Paul

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