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United States Steel Corp. began a formal review of strategic alternatives as it rejected an offer to sell itself to rival Cleveland-Cliffs Inc.
Ohio-based Cliffs said Sunday it offered to pay $17.50 in cash and 1.023 of its shares for each US Steel share. That implies a value of $32.53 per share as of Friday’s close, a 43% premium to US Steel’s last closing price of $22.72 and a proposed market capitalization of about $7.25 billion.
US Steel on Sunday rejected the offer as being “unreasonable,” according to the Cliffs statement. Hours earlier, Pittsburgh-based US Steel said it had begun a formal review of strategic alternatives after receiving “multiple unsolicited” proposals, ranging from acquisition of certain production assets to offers for the whole company.
The proposed deal would have created one of the world’s largest steelmakers, said Cliffs, which has been the most active dealmaker in the US steel industry for the last few years. The company “stands ready” to engage on the offer, despite the rejection.
Formerly just an iron ore producer that didn’t make steel, Cliffs decided to snap up AK Steel Holding Corp. in 2019 and ArcelorMittal’s U.S. operations in 2020. The purchases made Cliffs the dominant operator of traditional blast furnaces in the US, with a massive foothold in the highly profitable business of steelmaking for the car industry.
Cliffs Chief Executive Officer Lourenco Goncalves, known for a combative personality that seldom shies from publicly stating opinions, owns a stable collection of the nation’s integrated traditional mills, but still has little footprint in electric arc furnaces, which remelt scrap and turn it into steel.
The bid comes amid a moment of a years-long transition for US Steel, which traces its roots back to 1901 when J. Pierpont Morgan merged a collection of assets with Andrew Carnegie’s Carnegie Steel Co. Chief Executive Officer David B. Burritt took the helm of the then-struggling metal producer in 2017, when some investors feared it was on the path to bankruptcy.
Since Burritt’s arrival, the company underwent a massive transition in its manufacturing process, focusing on furnaces that remelt scrap into steel rather than creating metal from iron ore in the traditional manner. Burritt purchased Big River Steel in Arkansas and expects to pour an additional $3 billion in the operation by 2024 to double its capacity. The bet has paid off, with shares of the company doubling since the end of 2019.
US Steel has hired Barclays Capital and Goldman Sachs as financial advisers for its strategic review. The steelmaker hasn’t set a deadline for the review to be completed, and the process may not result in a transaction or any other strategic outcome, the company said in its statement.
