On Sunday, United States Steel (NYSE:X) announced that its board of directors has hired financial advisors to initiate a formal review process for evaluating strategic options after receiving “multiple unsolicited offers,” including a $7.3 billion takeover proposal from rival steelmaker Cleveland-Cliffs (NYSE:CLF) that was rejected by the company.
U.S. Steel Turns Down Cleveland-Cliffs’ Takeover Offer
While U.S. Steel did not mention Cleveland-Cliffs in its initial statement, the company said that the multiple offers that it received ranged from the proposed purchase of certain production assets to the acquisition of the whole company.
In a statement released later on Sunday, U.S. Steel confirmed that it rejected an unsolicited cash and stock offer from Cleveland-Cliffs to acquire the whole company, as the latter refused to allow for the standard process to review the offer. Nevertheless, the company said that it has invited Cleveland-Cliffs to participate in its strategic review process.
Meanwhile, Cleveland-Cliffs said that U.S. Steel rebuffed its proposal on August 13, calling it “unreasonable.” On July 28, Cleveland-Cliffs offered to pay $17.50 in cash and 1.023 shares of its stock for each U.S. Steel share, reflecting a 42% premium to U.S. Steel’s closing share price. The company then reiterated this offer to U.S. Steel’s board on August 11.
Cleveland-Cliffs CEO Lourenco Goncalves said that the company hopes to continue to engage with U.S. Steel in a possible deal. Goncalves believes that the acquisition will combine the complementary U.S.-based footprint of the two companies and create a lower-cost, more innovative, and stronger domestic steel supplier.
Under the leadership of Goncalves, Cleveland-Cliffs acquired Ohio-based AK Steel and most of the U.S. steel mills operated by Luxembourg-based ArcelorMittal (NYSE:MT) in 2020, when steel prices declined in the early days of the COVID-19 pandemic.
Meanwhile, U.S. Steel strengthened its position by acquiring the remaining equity of Big River Steel for $774 million in early 2021.
If the acquisition of U.S. Steel by Cleveland-Cliffs goes through, it will create a steel behemoth that will be in a better position to compete with China, which dominates the global steel industry.
What is the Analyst View on U.S. Steel Stock?
Wall Street has a Moderate Sell rating on U.S. Steel based on four Holds and three Sells. The average price target of $22.91 indicates that the stock could be range bound from current levels. Shares have declined 9% year-to-date.
