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On the shores of Lake Michigan, two massive steel mills are located just under 10 miles apart. These mills utilize blast furnaces that reach temperatures of up to 3,000 degrees to smelt luminous iron ore. A recent proposal aims to consolidate these mills under one ownership, potentially creating a dominant American steel industry player in the face of Chinese dominance. However, this move may also invite scrutiny from US competition regulators.
Cleveland-Cliffs, the current owner of the mill at Indiana Harbor, has made an offer to acquire United States Steel, which operates its largest facility nearby in Gary, Indiana. Their offer of $10 billion in cash and stock, including assumed debt, was quickly matched by a cash-only offer from their smaller competitor, Esmark.
Any potential merger would further consolidate the US steel industry, which is now comprised of four main companies: Cleveland-Cliffs, Nucor, Steel Dynamics, and US Steel. Although US steel production reached 80.5 million tonnes last year, compared to China’s 1 billion tonnes, the industry has experienced growth due to increased demand from the automobile sector and the implementation of tariffs on imports during former President Donald Trump’s administration.
Under the leadership of CEO Lourenco Goncalves, Cleveland-Cliffs has already expanded its operations through the acquisition of AK Steel and ArcelorMittal’s US operations in 2020, totaling $6 billion. This potential consolidation has raised concerns about potential anti-trust issues, considering the increased market control by Cleveland-Cliffs.
While many steel products now utilize newer technologies like scrap-fed electric arc furnaces, blast furnaces remain critical for producing automotive products, which account for nearly one-third of total US steel demand.
Cleveland-Cliffs, founded in 1847 to mine iron ore in the Great Lakes region, has adapted to changing market conditions by vertically integrating and acquiring the US steel mills of their major customers, ArcelorMittal and AK Steel.
Goncalves, born in Brazil and with a background in engineering and metals and mining, became CEO of Cleveland-Cliffs in 2014 after being appointed by activist fund Casablanca Capital in a fight for control of the company. Known for his outspoken nature, Goncalves is viewed as an executive who can navigate challenges and deliver success.
Cleveland-Cliffs stated in an investor presentation that the acquisition of US Steel would strengthen critical infrastructure, bolster national security, and create more jobs. They highlight that the combined entity would be the only American steel company among the world’s top 10 steel producers. The bid from the Ohio-based steelmaker has garnered support from the United Steelworkers union.
The steel industry has benefited from leniency from antitrust regulators due to the “failing industry” doctrine, which allows more flexibility in mergers and acquisitions when an industry is dominated by foreign importers. However, the steel industry can no longer be classified as failing.
In recent years, US hot-rolled coil steel prices have experienced significant fluctuations. Prices soared to almost $2,000 in 2021 due to supply chain disruptions and inflation, after averaging around $600 per short ton for the previous decade. Prices have since stabilized at a healthy level of approximately $866 this month.
US Steel announced a strategic review after receiving multiple unsolicited proposals from potential buyers. While they publicly rejected Cleveland-Cliffs’ bid, serious negotiations are reportedly ongoing between the two companies. Industrial and steel group Esmark also made a $10 billion all-cash offer, but has provided minimal information about the financing required for the deal. Esmark’s CEO, James Bouchard, questioned the benefits of a merger between Cleveland-Cliffs and US Steel, stating that it would result in a stagnant entity.
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