U.S. Steel (X) -) shares soared after the industrial giant rejected a $7.3 billion takeover offer from rival Cleveland-Cliffs (CLF) -), calling the unsolicited deal an "unreasonable proposal."
The Pittsburgh company said Cleveland-Cliffs, which went public with its takeover bid on Sunday, would not agree to sign a nondisclosure agreement that would enable the two companies to evaluate the cash-and-shares proposal.
Cleveland-Cliffs said it was prepared to pay $32.53 for each share of U.S. Steel, consisting of $17.50 cash plus 1.023 shares of Cleveland-Cliffs. That would be a 43% premium to U.S. Steel's Friday closing price and a level that would value the country's second-biggest steelmaker at around $7.26 billion.
The group did, however, invite Cleveland-Cliffs to "reach out to our financial and legal representatives" and join the group's recently unveiled strategic review.
"As you well know, our Board – or any board – could not, consistent with its fiduciary duties, agree to a proposal of which 50% is represented by your stock without conducting a thorough and completely customary due diligence process, to evaluate the risks and potential upsides and downsides inherent in the transaction, including the stock component," U.S. Steel said in a statement. "Doing otherwise would be tantamount to accepting a price without knowing what it in fact represents."
U.S. Steel shares were marked 32% higher in early afternoon trading Monday to change hands at $30.00 while Cleveland-Cliffs shares rose 9.8% $16.14.
U.S. Steel shares on Friday had closed at $22.72 each on the New York Stock Exchange, after rising 0.98% on the session. That pegged their year-to-date decline at around 9.3% with a market value of $5.1 billion.
“Although X has performed a bit better in recent quarters, it has a history of volatile and spotty performance and would likely benefit from new ownership," said Gimme Credit analyst Evan Mann.
"Cleveland Cliffs CEO Lourenco Goncalves has a track record of turning around companies and maximizing cash flow as he did recently with acquisitions of AKS Steel and Arcelor Mittel USA," he added. "If he were to acquire U.S. Steel, I imagine he would run the same play book to maximize benefits from vertical integration, updating facilities, rationalizing capacity, and negotiating fair supply contracts with OEM.”
U.S. Steel: Q2 solid, must maintain cash-flow growth
Last month U.S. Steel posted solid second-quarter earnings, with profit pegged at $1.92 a share, topping earlier forecasts, even as sales slumped 20% to $5.01 billion.
The group needs to maintain cash-flow growth, however, if it is to meet the spending commitments its made to expand projects in Arkansas following its 2020 acquisition of Big River Steel.
Over the weekend, U.S. Steel Chief Executive David Burritt said the group had received "multiple unsolicited proposals" that ranged from a whole purchase to offers for parts of the business.
"The interest demonstrated by the unsolicited proposals received to date is a validation of U. S. Steel’s strategy and successful track record of execution," he added.
"While the Board conducts its review of previously received proposals and other proposals it expects to receive, our entire team remains focused on safely and responsibly executing across all of our operations and advancing our Best for All strategy, while continuing to deliver for all stakeholders.”
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