Text size
A tie-up between Cleveland Cliffs and U.S. Steel would raise concerns about market concentration.
Jean-Christophe Verhaegen/AFP via Getty Images
The battle for
United States Steel
has already taken a number of unexpected twists and turns. Investors just got another one.
Thursday, The United Steelworkers essentially backed a bid by
Cleveland-Cliffs
(ticker: CLF) to acquire U.S. Steel (X) by assigning its right to bid for the steel company to Cliffs. That matters because an agreement between the Union and U.S. Steel specifies that if the Union bids, the company isn’t allowed to accept other offers unless the board determines they are superior.
A second condition of the labor agreement is that any buyer must reach a deal with the union before a deal can be closed. It appears a buyer can also agree with the union to assume the conditions of the existing labor contract. U.S. Steel didn’t immediately respond to a request for clarification.
The agreement and rights transfer give the union “de facto veto power on a potential sale of the whole company,” said a Cliffs spokesperson in an emailed statement.
About 80% of U.S. Steel employees in North America and Slovakia are covered by collective bargaining agreements.
U.S. Steel disagrees. “We are aware that the USW has transferred [rights] to Cleveland-Cliffs….while the [basic labor agreement] provides the USW with [certain rights], it does not provide the USW or its assignee the right to veto any transaction,” said a company spokesperson in an emailed statement. “Our commitment and ability to conduct a comprehensive and thorough review of strategic alternatives to maximize value for our stockholders remain unchanged.”
Price per share, for instance, doesn’t always determine the best bid. The mix of cash and stock can matter. Sometimes investors prefer one over the other. The Cliffs bid is a mix of cash and stock.
The ability to close a transaction matters as well. KeyBanc analyst Philip Gibbs pointed out in a report earlier this week that a Cliffs-U.S. Steel combination would draw antitrust scrutiny. Both companies are big players in the North American iron ore and automotive steel markets.
The union move is the latest episode in the takeover drama. U.S. Steel itself kicked it all off, announcing Sunday it was pursuing strategic alternatives after receiving “multiple bids” for the company or some of its assets.
Cleveland-Cliffs then disclosed on Sunday a cash and stock bid valued at $35. Steel service center Esmark then came in with a $35 per share all-cash bid on Tuesday. Wednesday, Reuters reported that
ArcelorMittal
(MT) was considering a bid.
ArcelorMittal
didn’t respond to a request for comment.
Union President Thomas Conway called the potential ArcelorMittal bid foolish shortly after the Reuters report. ArcelorMittal actually sold its U.S. operations to Cliffs in 2020. A re-entry into the U.S. industry would be a surprise.
U.S. Steel stock was up 1.7% in midday trading Friday at $31.23. The
S&P 500
and
Dow Jones Industrial Average
were down roughly 0.3% and 0.1%, respectively.
At just above $31 a share, U.S. Steel stock is up about 37% for the week. Still, shares are trading a few dollars below the bids, indicating investors aren’t sure what will happen.
There are reasons for the discount. The concern about market concentraton is one factor. The fact that the union doesn’t seem to favor ArcelorMittal is another. And Gordon Haskett analyst Don Bilson pointed out that Esmark’s bid didn’t include any information about how the $7 billion to $8 billion purchase would be financed.
There is a lot for investors to think about. After a week of excitement, it appears more drama lies ahead.
Write to Al Root at allen.root@dowjones.com
