Union Throws a Curveball in Battle for U.S. Steel
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, or USW, 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 Cleveland-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 merger can be closed, but a buyer can also simply assume the conditions of the existing labor contract.
The agreement and rights transfer give the union “de facto veto power on a potential sale of the whole company,” Cleveland-Cliffs said in an emailed statement.
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,” the company said 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.”
Both sides appear to be publicly debating. Nothing definitive is decided. The assignment essentially gives Cleveland-Cliffs the right to match the best offer the U.S. Steel Board receives. Price per share, however, doesn’t always determine the best bid. The mix of cash and stock can matter. Sometimes investors prefer one over the other. The Cleveland-Cliffs bid is a mix of cash and stock.
Related video: US Steel Rejects $7.25 Billion Bid From Rival Cliffs (Bloomberg)
The ability to close a transaction matters as well. KeyBanc analyst Philip Gibbs pointed out in a report earlier this week that a Cleveland-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 Cleveland-Cliffs in 2020. A re-entry into the U.S. industry would be a surprise.
U.S. Steel stock rose 0.9% Friday to close at $30.99. The S&P 500 and Dow Jones Industrial Average were both roughly flat.
At about $31 a share, U.S. Steel stock is up about 36% 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 concentration 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.
About 80% of U.S. Steel employees in North America and Slovakia are covered by collective bargaining agreements.
Write to Al Root at allen.root@dowjones.com
An employee looks at coils of steel
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, or USW, 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 Cleveland-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 merger can be closed, but a buyer can also simply assume the conditions of the existing labor contract.
The agreement and rights transfer give the union “de facto veto power on a potential sale of the whole company,” Cleveland-Cliffs said in an emailed statement.
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,” the company said 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.”
Both sides appear to be publicly debating. Nothing definitive is decided. The assignment essentially gives Cleveland-Cliffs the right to match the best offer the U.S. Steel Board receives. Price per share, however, doesn’t always determine the best bid. The mix of cash and stock can matter. Sometimes investors prefer one over the other. The Cleveland-Cliffs bid is a mix of cash and stock.
Related video: US Steel Rejects $7.25 Billion Bid From Rival Cliffs (Bloomberg)
The biggest Deal News this morning? US Steel rejecting a $7.25Duration 0:58 View on Watch
The ability to close a transaction matters as well. KeyBanc analyst Philip Gibbs pointed out in a report earlier this week that a Cleveland-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 Cleveland-Cliffs in 2020. A re-entry into the U.S. industry would be a surprise.
U.S. Steel stock rose 0.9% Friday to close at $30.99. The S&P 500 and Dow Jones Industrial Average were both roughly flat.
At about $31 a share, U.S. Steel stock is up about 36% 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 concentration 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.
About 80% of U.S. Steel employees in North America and Slovakia are covered by collective bargaining agreements.
Write to Al Root at allen.root@dowjones.com
it will undertake all the obligations outlined in the agreements between U.S. Steel and the USW
Zacks Equity Research
Fri, August 18, 2023
Cleveland-Cliffs Inc. CLF has announced that it has been granted the exclusive right by the United Steelworkers (USW) to bid under their Basic Labor Agreement with United States Steel Corporation X. This assignment positions Cleveland-Cliffs as the sole viable purchaser with the capability to acquire the entirety of U.S. Steel. Moreover, CLF has committed that upon the successful completion of a transaction, it will undertake all the obligations outlined in the agreements between U.S. Steel and the USW that pertain to U.S. Steel employees.
Cleveland-Cliffs Inc. Price and Consensus
Cleveland-Cliffs Inc. Price and Consensus
In adherence to the collective bargaining agreement with U.S. Steel, any prospective sale of the entire company or assets represented by USW necessitates the support of USW. Through this assignment, the USW's authority to bid on such prospective transactions has been transferred to CLF. The transfer and assignment of USW's rights are exclusively applicable to Cleveland-Cliffs.
Earlier, U.S. Steel's board had declined a proposal from Cleveland-Cliffs for the acquisition. The board cited several grounds for its decision, including Cleveland-Cliffs’ refusal to sign a non-disclosure agreement.
Shares of CLF have declined 17.1% over the past year compared with a 2.4% decline of its industry.
Zacks Investment Research
Cleveland-Cliffs’ second-quarter 2023 adjusted earnings of 69 cents per share matched the Zacks Consensus Estimate. Revenues fell 5.6% to $5,984 million in the quarter. The top line, however, beat the Zacks Consensus Estimate of $5,727 million.
Zacks Rank & Key Picks
Cleveland-Cliffs currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Basic Materials space are Carpenter Technology Corporation CRS, sporting a Zacks Rank #1 (Strong Buy), and L.B. Foster Company FSTR, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The earnings estimate for CRS’s current year is pegged at $3.36, indicating year-over-year growth of 194%. CRS beat the Zacks Consensus Estimate in all the last four quarters, with the average earnings surprise being 10%. The company’s shares have rallied 49.5% in the past year.
The consensus estimate for FSTR's current year is pegged at 53 cents, indicating year-over-year growth of 112.5%. FSTR beat the Zacks Consensus Estimate in all the last four quarters, with the average earnings surprise being 134.5%. The company’s shares have rallied 27.6% in the past year.
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