The battle for
United States Steel
is heating up and investors aren’t sure what to do.
Monday afternoon, privately held Pittsburgh-based Esmark announced a $35-per-share all-cash bid for U.S. Steel (ticker: X), about $7.8 billion in total. The bid came shortly after U.S. Steel announced it was looking at strategic alternatives following multiple offers for the entire company and assets. Steelmaking peer
Cleveland-Cliffs
(CLF) was one of those bidders, disclosing a cash-and-stock offer of $35 a share on Sunday.
Cash bids can be preferred by investors. They don’t have to worry about the stock performance of the other company. U.S. Steel rejected the Cleveland-Cliffs’ offer as inadequate. U.S. Steel didn’t immediately return a request for comment about the Esmark bid.
Shares of the iconic steel company gained almost 37% on Monday to close at $31.08. Cliffs stock gained almost 9%. U.S. Steel stock jumped another $2 after the emergence of the Esmark bid emerged. U.S. Steel stock is down 0.9% in premarket trading Tuesday, while
S&P 500
and
Dow Jones Industrial Average
futures are both off about 0.6%.
Despite Monday’s gains, U.S. Steel stock is still roughly $5 away from the bid price of both Cleveland-Cliffs and Esmark, showing, to some extent, that investors don’t quite know what to make of the bids.
In the case of Cleveland-Cliffs, market concentration might be an issue. “Most glaringly, the proforma [Cleveland-Cliffs and U.S. Steel] company would effectively control 100% of the U.S. iron ore market,” wrote KeyBanc analyst Philip Gibbs in a recent report. “Secondly, Cliffs is currently the largest supplier of automotive-grade steel in the USA, while U.S. Steel shipped greater than of its volumes to the auto [and] transportation market in 2022.”
In the case of Esmark, investors aren’t that familiar with the company and it is primarily a steel service center, buying steel from mills such as U.S. Steel and processing material for customers. Steel service centers are akin to distributors of the industry.
Service centers can be large.
Reliance Steel & Aluminum
(RS) has a market capitalization of almost $17 billion, more than U.S. Steel and Cleveland-Cliffs combined. It’s easy to find Reliance’s market cap. It’s publicly traded. Privaately held Esmark is another story.
It’s a little surprising that a privately held distributor would bid for one of the largest steel makers in the country. Steel distribution is a different business, typically requiring less capital than a full steel-making operation.
But Esmark founder James Bouchard has 40 years in the steel business, and is a former U.S. Steel executive.
As for financing, an Esmark spokesperson told Barron’s in an emailed statement that the company and Bouchard have the money for the bid.
Write to Al Root at [email protected]
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