Investors should prepare for volatile trading in steel stocks to start a new week. The steel plant built by Andrew Carnegie and
he might not be independent for much longer.
(ticker: X), formed in 1901, announced on Sunday that it was exploring strategic alternatives after receiving “multiple unsolicited proposals.” Many organizations are looking to invest in or take over the steel company.
“This decision follows the company receiving multiple unsolicited proposals ranging from the acquisition of certain production assets to consideration of the entire company,” CEO David Burritt said in a statement. Press release. “The Board is taking a measured approach to considering these proposals, including seeking further information to evaluate proposals that are preliminary and subject to ongoing due diligence and review.”
The stock soared in trading on Monday, rising 27% to $28.89, its highest percentage gain on record. He
and
they rose 0.3% and 0.6%, respectively.
One of the proposals was
(CLF), which was rejected. He announced on Sunday a purchase proposal
for $17.50 per share and 1,023 Cliffs shares. The proposal valued US Steel shares at about $35 a share. US Steel shares closed Friday at $22.72.
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Cliffs shares rose 4.4% to $15.35 after falling in premarket trading. Large acquisitions involving stock can often drive down the acquirer’s share price early in the process.
“On July 28, I approached the CEO and board of US Steel with a written proposal to acquire US Steel for a substantial premium, valuing the company at $35.00 per share with 50% cash and 50% stock,” he said. Cliff CEO Lourenco Goncalves in a statement. Press release. “US Steel’s board of directors rejected our proposal, calling it unreasonable. As such, I believe it is necessary to make our proposal public now to help accelerate substantive engagement between our two companies.”
Goncalves has made Cliffs the largest producer of flat rolled steel in North America by acquiring steel and the american steel operations of
(MOUNTAIN). Flat rolled products are made into things like car doors and filing cabinets. Long products are things like structural beams and rebar.
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In a separate statement, Burritt sent the rejection letter to Cleveland Cliffs, which read: “The Board has no choice but to reject your unreasonable proposal.”
KeyBanc analyst Philip Gibbs called Cliffs’ proposal a solid offer, adding, however, that the deal was a long shot. “Most evidently, the pro forma company would effectively control 100% of the US iron ore market,” Gibbs wrote in a report. “Second, Cliffs is currently the largest supplier of automotive grade steel in the US, while US Steel shipped more of its volumes to the auto/transportation market in 2022.” Regulators may not like that level of increased market concentration.
At $35 per share, the US Steel company, including equity and net debt, would be valued at about $10 billion, or about $670 per ton of shipments. US Steel company value was about $11 billion in March, when steel prices were highest. Cliffs’ company is valued at about $13 billion or $800 per ton shipped. Cliffs is worth a bit more, but both companies have reported about $3.8 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda, on average annually for the past two years.
A US Steel-Cliffs combination would create a company with approximately 30 million tons of transportable steel capacity with significant coal and iron ore assets. That would be the largest in the United States, according to data from the World Steel Association. number two would be
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(NEW).
Nine of the world’s 15 largest steel companies are Chinese. China produces more than half of the 2.1 billion metric tons of steel produced worldwide annually. The United States produces approximately 100 million tons and is a net importer of finished steel products. Being a net importer means that the price of steel around the world typically sets the price that US producers can charge.
Consolidation in the domestic industry could help producers better match supply and demand and achieve higher profit margins.
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Investors could welcome consolidation. As the week begins, US Steel shares are down 9.3% this year and 10% in the past 12 months. Cliffs shares are down 9% year to date and 25% in the last 12 months.
Steel stocks have been fighting against falling steel prices. Benchmark steel prices enter the week around $750 a tonne after peaking around $1,300 a tonne in March. A year ago, steel prices were around $800 a ton.
Write to Al Root at allen.root@dowjones.com
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