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Cleveland-Cliffs, the largest flat-rolled steel producer in North America, said on Sunday it offered to buy U.S. Steel in a cash-and-stock deal valued at $35 per share, which represented a premium of 43% premium to U.S. Steel’s last closing price.
Despite the surge, shares of U.S. Steel were trading well below the offer price at $27.92, indicating some investors believe a deal may not happen at that price. Cleveland-Cliffs shares were down 6.1%.
A combination between the two firms will create the largest steel producer in North America and the 10th largest steel producer in the world and will be a dominant supplier to the transportation sector, KeyBanc Capital Markets analyst Philip Gibbs said in a note.
“We view the probability of this deal getting done without meaningful concessions as low,” Gibbs added.
After surging for last two years due to a mismatch in demand and supply, steel prices have cooled so far in 2023, increasing margin pressure on companies grappling with high labor costs.
NYMEX U.S. Midwest Hot-rolled steel futures have fallen about 9% so far this year, but remain above pre-pandemic levels.
Cleveland-Cliffs has been betting on acquisitions to bolster growth and take on competition from China – it bought AK Steel and the U.S. business of ArcelorMittal (NYSE:MT) in 2020.
The company went public with its offer after U.S. Steel rejected the bid as being “unreasonable” and instead announced a formal review process and said it received multiple bids for parts or all of its business.
U.S. Steel said it has invited Cleveland-Cliffs to be a part of the review process.
