Cleveland-Cliffs Inc. went public with an offer to buy U.S. Steel after the bid was rejected.
On July 28, Cleveland-Cliffs offered U.S. Steel $35 a share in cash and shares of Cleveland-Cliffs stock. The split was 50-50.
“After two weeks without any substantive engagement from U.S. Steel with respect to the economic terms contained in our compelling proposal, U.S. Steel’s board of directors rejected our proposal, calling it ‘unreasonable,’” said Lourenco Goncalves, chairman, president and chief executive officer of Cleveland-Cliffs, in a press release. “As such, I believe it necessary to now make our proposal public to help expedite substantive engagement between our two companies.”
Goncalves said his company is still interested in discussing the proposal.
“Although we are now public, I do look forward to continuing to engage with U.S. Steel on a potential transaction, as I am convinced that the value potential and competitiveness to come out of a combination of our two iconic American companies is exceptional,” he said.
Pittsburgh-based U.S. Steel said Cleveland-Cliffs would not sign a nondisclosure agreement unless U.S. Steel agreed to the “economic terms” of the unsolicited proposal. President and Chief Executive Officer David Burritt said in a press release that his team was “shocked” to receive a letter Aug. 11 that said Cleveland-Cliffs would not sign the NDA after U.S. Steel's board had expressed willingness to enter into one on Aug. 7.
“Our board — or any board — could not, consistent with its fiduciary duties, agree to a proposal of which 50% is represented by your stock without conducting a thorough and completely customary due diligence process, to evaluate the risks and potential upsides and downsides inherent in the transaction, including the stock component,” Burritt said in a letter posted to U.S. Steel's website. “Doing otherwise would be tantamount to accepting a price without knowing what it in fact represents.”
Burritt's letter concludes with an invitation for Cleveland-Cliffs to participate in the process as U.S. Steel conducts a strategic review of the company.
Cleveland-Cliffs said the United Steelworkers are on board with the sale. A letter dated Aug. 3 from Thomas Conway, international president of the USW, said “Cliffs has shown itself to be an outstanding employer to all of its workers.” The union represents 11,000 workers at U.S. Steel.
“The USW feels that Cliffs is the single steel producer in the best position to ensure that U.S.-based manufacturing remains strong in this country with the support of the USW and its represented workforce,” Conway wrote.
However, Congressman Frank Mrvan, vice chairman of the Congressional Steel Caucus, issued a statement showing concern about the statement. He said his office has been in contact with USW District 7 Director Mike Millsap and Northwestern Indiana Building & Construction Trades Council Business Manager Randy Palmateer.
“I also would note that these are preliminary discussions regarding private entities approaching another private entity,” Mrvan said.
Mrvan said he is particularly concerned about “the vital role the steel industry provides for our national security.”
“That is why my office and the Congressional Steel Caucus will continue to closely monitor these ongoing conversations and advocate for the strength of the domestic steel industry, which is essential to the economic health of our nation, our communities, and our workers,” he said.
He pointed out that the steel industry's strength is at the core of the buyout offer.
“Additionally, I would acknowledge U.S. Steel has an undeniable historical value to the current economic strength and workforce of Northwest Indiana, and I believe that these conversations are the result of the current strength of the domestic steel industry,” he said. “This is a profoundly different type of conversation than those that we remember in past decades regarding industry and workforce contraction.”
A Cleveland-Cliff's investor presentation said the transaction was valued at about $10 billion. The cash payout would be $17.50 a share and a stock exchange ratio of 1.023 shares of Cleveland-Cliffs.
