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The tie-up between Cleveland Cliffs and US Steel should raise concerns about market concentration.
Jean-Christophe Verhagen/AFP via Getty Images
fight for
United States Steel
It has already taken a number of unexpected twists and turns. Investors got another one.
Thursday, mainly United Steelworkers Supported try before
Cleveland Cliffs
(Stock ticker: CLF) to acquire US Steel (X) by ceding its right to bid for the steel company to Cliffs. This is important because an agreement between Union and US Steel specifies that if the union submits bids, the company is not allowed to accept other bids unless the board determines they are superior.
The second condition of the employment agreement is that any buyer must reach an agreement with the union before the deal can be closed. It seems that the buyer can also agree with the union to assume the terms of the current employment contract. US Steel did not immediately respond to a request for clarification.
A Cliffs spokesperson said in an emailed statement that the agreement and rights transfer give the union “a de facto veto over a potential sale of the entire company.”
About 80% of US Steel’s employees in North America and Slovakia are covered by collective bargaining agreements.
US Steel disagrees. “We understand that USW has transferred (rights) to the Cleveland-Cliffs … While[the basic business agreement]grants USW[certain rights]it does not give USW or its assigns the right to reverse any transaction,” a company spokesperson said in a statement. Email Statement “Our commitment to and ability to conduct a thorough and comprehensive review of strategic alternatives to maximize value for our shareholders remains unchanged.”
A stock price, for example, doesn’t always determine the best bid. The mix of cash and inventory can be important. Sometimes investors prefer one over the other. Cliffs offer is a mixture of cash and stock.
The ability to close the deal is also important. KeyBanc analyst Philip Gibbs indicated in a report earlier this week that the Cliffs-US Steel group would attract antitrust scrutiny. Both companies are major players in the North American iron ore and steel markets.
The union move is the latest episode in the takeover drama. US Steel itself fired it all, announcing Sunday that it was seeking strategic alternatives after receiving “multiple bids” for the company or some of its assets.
Then on Sunday, the Cleveland Cliffs revealed a $35 cash and stock offer. Then, steel service center Esmark made a cash offer of $35 per share on Tuesday. Wednesday, Reuters reported that
Arcelor Mittal
(MT) was considering making an offer.
Arcelor Mittal
He did not respond to a request for comment.
Federation chairman Thomas Conway called ArcelorMittal’s potential offer foolish shortly after Reuters’ report. ArcelorMittal has already sold its US operations to Cliffs in 2020. The re-entry into the US industry will come as a surprise.
US Steel was up 1.7% at midday Friday, at $31.23. the
Standard & Poor’s 500
And
Dow Jones Industrial Average
It decreased by 0.3% and 0.1%, respectively.
At just over $31 a share, US Steel is up about 37% for the week. However, the shares are trading below bids by a few dollars, suggesting that investors aren’t sure what’s going to happen.
There are grounds for deduction. Concern about market concentration is one factor. The fact that Etihad does not seem to favor ArcelorMittal is another. Gordon Haskett analyst Don Bilson noted that Esmark’s bid did not include any information on 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 looks like more drama lies ahead.
Write to Al Root at allen.root@dowjones.com