Steel Mills

'Their saga is not over:' Cliffs still watching USS-Nippon deal
Written by Stephanie Ritenbaugh
January 30, 2024
Cleveland-Cliffs Inc. executives didn’t mince words when opening its Q4’23 earnings call.
CFO Celso Goncalves began the call by acknowledging the Ohio steelmaker’s attempt to acquire iconic Pittsburgh-based U.S. Steel.
Cliffs was outbid by Japan’s Nippon Steel Corp. with a final offer of $14.9-billion in an all-cash deal. The tie-up was announced on Dec. 18.
“As we all know by now, these were just a few of many severe misjudgments made by the U.S. Steel board, their management team, their lawyers at Milbank & Wachtel and their financial advisors at Barclays and Goldman Sachs,” Celso said during the call on Tuesday, Jan. 30. “A deal is only a done deal when it closes, and recent reports make it clear that their announced transaction with Nippon faces a very uncertain path to close.”
“Their saga is not over,” the CFO said.
Cliffs touted its track record of closing deals involving assets represented by the USW: in 2020, Cliffs snapped up AK Steel and ArcelorMittal USA.
“M&A deals involving unionized labor forces are a completely different animal than cookie-cutter sale processes,” Celso said. “Labor agreements are not black and white, and practical implications of upsetting the unions are hard to predict.”
During the bidding war, Cliffs’ final proposal was higher than realized at $27/share and 1.444 shares of its stock (total value of $54/share). However, a proxy statement issued last week by USS revealed the Pittsburgh company was concerned about getting necessary approvals, such as antitrust clearance, in a merger with Cliffs.
Cliffs maintains it could “mitigate antitrust regulatory risk and preserve a competitive market environment” but “rather than working towards a deal with Cliffs, U.S. Steel chose to announce a proposed sale of the company to a foreign buyer with serious conflicts of interest for America, no support or even awareness from the union, and for a lower overall value.
“U.S. Steel clearly overestimated the regulatory antitrust risk with Cliffs, completely ignored the union, and miscalculated the political risk with Nippon given the negative implications to our supply chains and national security,” Celso said.
Going forward, Cliffs will focus on opportunistic M&A and share buybacks, he said.
“We’rе going to be buying back shares, and we’rе going to be paying down debt,” the CFO said.
In his remarks, CEO Lourenco Goncalves applauded the Biden administration and other elected officials for “raising alarm bells” on the proposed Nippon-USS deal.
“We believe they rightfully see this transaction with Nippon, as proposed, being bad for America and bad for American workers,” Lourenco said. “As we all know, it’s hard to point out a single subject that can unify the positions and opinions of Democrats and Republicans.”
Moving forward
Lourenco pointed to Cliffs’ record shipments of 16.4 million short tons of steel during 2023. He also noted its ‘Cliffs H’ surcharge on lower-carbon steel for automotive customers, its key end market.
“With this success, we are pleased that we are able to hold our automotive pricing roughly steady into 2024, despite low-priced competition in the marketplace,” he said.
Cliffs also expects further advancement in the use of hydrogen in steelmaking. The company has invested $10 million in a hydrogen pipeline ahead of a planned hydrogen hub in Indiana with funding from the Department of Energy’s Hydrogen Initiative. Cliffs also has initiated its second blast furnace hydrogen injection trial.
Lourenco praised the Biden administration and Congress for bolstering hydrogen.
“The United States is closer than anyone else to becoming the first country in the world to have abundant and competitively priced green hydrogen available to support a true green industrial revolution,” he said. “We are also grateful for our partnership with our gas supplier, Linde, in these efforts. Linde remains as committed to this technology as we are.”

Stephanie Ritenbaugh
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