U.S. Steel’s stock started Monday with a 27% jump, after a weekend of corporate intrigue and back and forth revelations of a takeover bid by Cleveland-Cliffs.
The stock price soared even higher when another player threw his hat in the ring: Sewickley-based Esmark Inc, a quiet conglomerate led by steel industry veteran James Bouchard, which announced it would pay $35 for each and every share of U.S. Steel’s stock.
The company didn’t explain how it would finance the deal or what it would do with the assets. Through a spokeswoman, Bouchard “confirmed he/Esmark have the money.”
By the end of trading on Monday, U.S. Steel had added almost $2 billion, or 37% to its market capitalization.
The next few days are likely to be just as eventful, as Pittsburgh and the Mon Valley wait for the fate of an iconic 122-year-old company to be decided.
U.S. Steel’s rejection of Cliff’s offer on Sunday may be the company’s way of saying, “‘Hey, everybody. We’re for sale. If you’re interested, step up,’” said Gimme Credit analyst Evan Mann.
If there are other bids to be made, Mann predicted they’ll materialize within the next day or two.
“You want to strike while the iron is hot,” he said. Now, “it’s just a matter of putting together the right deal.”
U.S. Steel said on Sunday that it had received multiple offers for all or parts of the company and is evaluating its options.
What that means for the company’s corporate headquarters or its manufacturing plants in the region remains to be seen.
Mann, who followed Cliff’s CEO Lourenco Goncalves’ moves for years as he acquired AK Steel and ArcelorMittal USA, said he would expect Goncalves to “run the same playbook” if Cliffs acquires U.S. Steel.
“You could cherry pick assets,” Mann said. “You can keep their best assets and shed some of the nonperforming assets. He did a great job of doing that with the two companies he bought.”
Cleveland Cliffs and U.S. Steel both rely heavily on blast furnaces to make their steel. They are more expensive to run, have higher emissions, and are harder to ramp up and down to accommodate swings in demand. Both companies have been making inroads into electric arc furnaces, which are powered by natural gas and use recycled scrap metal instead of virgin iron ore.
In 2019, U.S. Steel invested in Big River Steel, an electric arc furnace mini mill in Arkansas, and acquired all of its assets in 2021. Last year, it announced it would invest $3 billion to build another mini mill close to Big River, doubling its capacity there.
Cliffs added electric arc furnaces to its portfolio when it acquired AK Steel.
Blast furnaces account for about 70% of global steel production, with the remaining 30% coming from modern electric arc furnaces. The U.S. inverts that percentage, making it a global leader in cleaner steel production.
A merger of Cliffs and U.S. Steel could inspire the rest of the world to prioritize sustainable steel production, said Ron Ashburn, executive director of the Association for Iron and Steel Technology, based in Cranberry Township.
“We need to be a major voice on that decarbonization stage,” Ashburn said.
Still, even if combined, their mini mill production would pale in comparison to U.S. leader Nucor.
But the two have found a common interest in electric steel. U.S. Steel recently joined its business suitor as one of two U.S. manufacturers making electrical steel, which is used in cars, especially electric vehicles, as well as generators and transformers.
Until recently, Cleveland-Cliffs had the only electrical steel plant in the country. But in March, U.S. Steel launched its own product, InduX, that would compete directly with Cleveland-Cliffs’ “Motor-Max” line introduced in December 2022 for EV and aircraft motors.
Electric steel demand is already high and expected to grow even more as federal money included in landmark infrastructure and climate bills makes its way into projects on the ground. Such legislation heavily favors American materials and manufacturing.
The push for domestic production could help strengthen supply chains, Ashburn said. It also speaks to a surprising strength in a declining industry.
“For too many generations, the U.S. steel industry hasn’t had sufficient market power,” Ashburn said. “I think this type of deal demonstrates value creation.”
Richard Bourke, a senior analyst with Bloomberg Intelligence, had the unpopular opinion that bigger doesn’t make better when it comes to legacy steel assets.
“I don’t think scale matters in this industry,” he said.
He noted that both Cliffs and U.S. Steel had idled capacity and wondered why either would want more capacity to deal with.
In a note on Monday, Bourke advised U.S. Steel to take the offer, rationalizing that “a bird in the hand” beats U.S. Steel’s plan of spending several billion dollars to upgrade its assets and then waiting several more years to see if the plan worked.
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