the battle for
it has already taken a number of unexpected twists and turns. Investors just got another one.
Thursday, The United Steelworkers, or USW, essentially endorsed an offer for
(ticker: CLF) to acquire US Steel (X) by ceding its right to bid for the steelmaker to Cleveland-Cliffs. That is important because an agreement between the Union and US Steel specifies that if the Union submits an offer, the company cannot accept other offers unless the board determines they are superior.
A second condition of the labor agreement is that any buyer must reach an agreement with the union before a merger can be closed, but a buyer can also simply assume the terms of the existing labor contract.
The agreement and transfer of rights give the union “de facto veto power over a potential sale of the entire company,” Cleveland-Cliffs said in an emailed statement.
US Steel disagrees. “We are aware that the USW has transferred (rights) to Cleveland-Cliffs… while the (basic labor agreement) grants the USW (certain rights), it does not give the USW or its assignee the right to veto any transaction.” the company said in an emailed statement. “Our commitment and ability to conduct a comprehensive and comprehensive review of strategic alternatives to maximize value for our shareholders remains unchanged.”
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Both sides appear to be publicly debating. Nothing definitive is decided. The deal essentially gives Cleveland-Cliffs the right to match the best offer the US Steel Board receives. However, the price per share does not always determine the best offer. The mix of cash and stocks can be important. Sometimes investors prefer one over the other. The Cleveland-Cliffs offer is a combination of cash and stock.
The ability to close a transaction is also important. KeyBanc analyst Philip Gibbs noted in a report earlier this week that a Cleveland-Cliffs-US Steel combination would attract antitrust scrutiny. Both companies are large players in the North American auto steel and iron ore markets.
The Union move is the latest episode in the takeover drama. US Steel itself kicked everythingannouncing Sunday that it was looking at strategic alternatives after receiving “multiple offers” for the company or some of its assets.
Cleveland-Cliffs then revealed a cash-and-stock offer valued at $35 on Sunday. Steel service center Esmark then entered with an all-cash offer of $35 per share. on Tuesday. Wednesday, Reuters reported that
(MT) was considering an offer. ArcelorMittal did not respond to a request for comment.
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Union president Thomas Conway called ArcelorMittal’s potential bid foolish shortly after the Reuters report. In fact, ArcelorMittal sold its US operations to Cleveland-Cliffs in 2020. A re-entry into the US industry would come as a surprise.
US Steel shares rose 0.9% on Friday to close at $30.99. He
and
both were roughly flat.
At about $31 a share, US Steel shares are up 36% for the week. Still, shares are trading a few dollars below bids, signaling investors aren’t sure what will happen next.
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There are reasons for the discount. Concern about market concentration is one factor. The fact that the union does not seem to favor ArcelorMittal is another. And Gordon Haskett analyst Don Bilson noted that Esmark’s offer did not include any information about how the $7 billion to $8 billion purchase would be financed.
Investors have a lot to think about. After a week of excitement, it looks like more drama is ahead.
About 80% of US Steel employees in North America and Slovakia are covered by collective bargaining agreements.
Write to Al Root at allen.root@dowjones.com
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