Investors should prepare for volatile steel stock trading at the start of the new week. The steel plant built by Andrew Carnegie and JP Morgan would not be independent for long.
On Sunday, United States Steel (code: X), founded in 1901, said it was exploring strategic alternatives after receiving “several unsolicited proposals”. Many companies want to invest in or acquire a steel plant.
“This decision follows the company’s receipt of multiple unsolicited proposals, ranging from the acquisition of certain manufacturing assets to consideration of the entire company,” said CEO David Burritt. Press release. “The Board is taking a considered approach to considering these proposals, including seeking additional information to evaluate proposals subject to preliminary and ongoing due diligence and review.”
Shares were up 21.4% to $27.57 in premarket trading on Monday.
One of the Cleveland-Cliffs (CLF) proposals, Rejected. It announced plans to buy US Steel on Sunday for $17.50 a share and 1,023 shares of Cliffs. The proposal values US Steel at about $35 a share. US Steel shares closed on Friday at $22.72 apiece.
“On July 28, I approached the CEO and Board of US Steel with a written proposal to purchase US Steel at a substantial premium, 50% cash and 50% stock valued at $35.00 per share,” said Cliff’s CEO, Lourenço Gonçalves. Press release. “US Steel’s board of directors rejected our proposal, saying it was unfair. Therefore, I believe it is necessary to make our proposal public now to help accelerate a substantive engagement between our two companies.
Gonçalves transformed Cliffs into North America’s largest flat-rolled steel producer by purchasing the North American steel operations of AK Steel and ArcelorMittal (MT). Flat rolled products become things like car doors and filing cabinets. Long products such as structural beams and rebar.
In a separate statement, Burritt issued a rejection letter to the Cleveland Cliffs that said, “The board has no choice but to reject your unreasonable proposal.”
At $35 a share, US Steel, including equity and net debt, would be valued at approximately $10 billion, or $670 per ton exported. U.S. Steel was worth about $11 billion when steel prices peaked in March. Cliffs’ enterprise value is around $13 billion, or $800 per tonne shipped. Cliffs is worth a little more, but both companies have earned about $3.8 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda, over the past two years on average.
The US Steel-Cliffs combination will create a company with significant iron ore and coal assets and a steel export capacity of approximately 30 million tons. It will be the largest in the United States, according to data from the World Steel Association. Number two would be Nucor (NUE).
Nine of the world’s top 15 steelmakers are Chinese. China produces more than half of the 2.1 billion metric tons of steel produced annually worldwide. 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 often dictates the price that US producers can charge.
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