U.S. Steel Corp., one of the largest steel producers in the country, announced on Sunday that it is exploring strategic alternatives for the company, including a possible sale, after receiving multiple unsolicited offers from potential buyers.
Cleveland-Cliffs makes public offer of $7.3 billion
One of the bidders was Cleveland-Cliffs Inc., a rival steelmaker that operates iron ore mines and steel plants in the U.S. and Canada. Cleveland-Cliffs made a public offer of $7.3 billion, or $24 per share, for U.S. Steel on Sunday, after the latter rejected the proposal and initiated a formal review process.
Cleveland-Cliffs said its offer represented a 42% premium over U.S. Steel’s closing price on Friday, and that the combined company would have annual revenue of about $37 billion and an adjusted EBITDA of $6.4 billion.
Cleveland-Cliffs also said that the merger would create significant synergies and cost savings, as well as enhance the product portfolio and geographic reach of both companies.
U.S. Steel seeks more information from other bidders
U.S. Steel, however, said that it was not interested in Cleveland-Cliffs’ offer, and that it had received other proposals that ranged from the acquisition of certain assets to the purchase of the whole company.
U.S. Steel’s CEO David Burritt said in a statement that the board and management team were committed to maximizing value for the shareholders, and that they had commenced a comprehensive and thorough review of strategic alternatives.
“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,” Burritt said.
U.S. Steel did not disclose the names or details of the other bidders, nor did it set a timeline or end date for the review process.
U.S. Steel faces challenges amid rising costs and competition
The announcement comes as U.S. Steel faces several challenges in the steel industry, such as rising costs of raw materials and energy, increasing competition from domestic and foreign rivals, and environmental regulations.
U.S. Steel has been raising prices to offset the impact of higher costs, but it has also been losing market share to more efficient and low-cost producers, such as Nucor Corp. and Steel Dynamics Inc., which use electric arc furnaces to make steel from scrap metal.
U.S. Steel has also been investing in modernizing its facilities and reducing its carbon footprint, but it has lagged behind its peers in terms of profitability and debt reduction.
According to Reuters, U.S. Steel had a net debt of $4.5 billion as of June 30, compared with $2.1 billion for Cleveland-Cliffs.
U.S. Steel shares soar on buyout news
Despite its challenges, U.S. Steel has seen strong demand for its steel products from various sectors, such as automotive, construction, energy, and infrastructure.
The company reported better-than-expected earnings for the second quarter of 2023, with revenue of $5.6 billion and adjusted net income of $1.2 billion.
The company also raised its guidance for the full year, expecting an adjusted EBITDA of $5.5 billion and a free cash flow of $1 billion.
The buyout news sent U.S. Steel’s shares soaring by 27% in early trading on Monday, reaching a high of $23.18 per share.
Cleveland-Cliffs’ shares also rose by 9%, reaching a high of $22.64 per share.