Steel Mills

Cleveland-Cliffs came close to acquiring U.S. Steel

Written by Laura Miller

A Jan. 24 SEC filing by U.S. Steel Corp. reveals further details about the company’s strategic review process.

Discussions of a sale began in March 2023 when an unnamed company approached the iconic Pittsburgh-based steelmaker regarding the potential for a merger. When other parties also came forward with unsolicited offers, U.S. Steel decided in August to initiate a formal process for considering a sale.

More than 50 counterparties were contacted regarding a deal; 19 signed confidentiality agreements. Eight bids were on the table by late September. Five parties were invited to participate in the last phase of the process, and two parties made bids that were considered up until the last minute.

The two parties making it to the final round were Nippon Steel Corp. (NSC), whose bid was accepted in December, and what is referred to in the 251-page document as ‘Company D.’

A spokesperson for Cleveland-Cliffs Inc. confirmed in an email to SMU on Friday, Jan. 26, that Company D is in fact Cleveland-Cliffs.

Cleveland-Cliffs is named directly in the SEC filing from late July until late August, which is when it signed a confidentiality agreement with USS regarding a potential merger. It is then referred to as Company D through the rest of the proxy filing.

Cliffs’ bid for USS

It was in late July that Lourenco Goncalves, chairman, president, and CEO of Cleveland-Cliffs, called up USS president and CEO David Burritt, proposing to buy USS for $35/share in a 50/50 cash and stock split.

As mentioned previously, USS went public in August with the news that it was considering strategic alternatives and also that it had rejected Cliffs’ initial offer.

On Sept. 1, Cliffs made another offer for USS, this one valued at $38.64/share.

In late September, U.S. Steel received eight offers of interest to acquire all or parts of the company. One of those offers came from NSC, which first proposed to acquire USS’ mini-mill segment and Keetac mining ops for $9.2 billion.

Cliffs and NSC were two of the five parties invited in October to participate in the next phase of the review process, which included due diligence sessions and site visits.

USS counsel told the Board there would be substantial antitrust risks associated with a merger with Cleveland-Cliffs and the other bidder that made the initial offer in March. Merging with either party would combine the top suppliers of certain steel products to the US auto industry, counsel said, which would be concerning.

In November, Cliffs committed to addressing the antitrust concerns, saying it would divest certain assets that generated up to $2 billion in revenue.

Dec. 1 was the deadline for all the parties to submit their final proposals. On that day, the highest bid came from Cliffs: $25/share in cash and 1.3 shares of Cliffs stock, valued at $48.74 per share. NSC’s bid was $43/share at that time.

The USS Board discussed risks related to Cliffs’ proposal, including a vote and approval from Cliffs’ shareholders and the potential impact of the divestitures needed to obtain antitrust approval.

Cliffs was confident in its ability to beat antitrust issues: Its proposal included a $1.5-billion termination fee payable by Cliffs to USS if antitrust approvals were not obtained.

On Dec. 15, NSC upped its bid to $48/share.

Although Cliffs’ final proposal was higher – $27/share and 1.444 shares of its stock (total value of $54/share) – the USS Board remained concerned about obtaining Cliffs’ shareholders’ approval.

NSC then made its final bid of $55/share in cash. After it agreed to take all actions required to obtain Committee on Foreign Investment in the United States (CFIUS) clearance, the USS Board decided NSC’s offer was superior to all others. The Board thought it was “more favorable to USS and its stockholders, taking into consideration price, form of consideration, certainty of payment, conditions precedent to closing, regulatory and competitive factors.”

USS announced its sale to NSC on Dec. 18.

Even though USS “chose to go a different direction with a foreign buyer,” Goncalves at the time of the announcement congratulated the company on the news and wished them luck in closing the deal.

Laura Miller

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