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In the 19th century, Andrew Carnegie transformed Pittsburgh into a major hub for American steel production. Now, Lourenço Goncalves aims to make Cleveland the steel capital in the 21st century. Cleveland-Cliffs, led by Goncalves, has recently proposed a $10 billion unsolicited cash-and-stock bid to acquire US Steel.
US Steel, based in Pittsburgh, traces its origins back to Carnegie himself. This historic figure is remembered as both a ruthless capitalist and a dedicated philanthropist.
Over the past five years, Cliffs shares have surged by 50%. The company, which is involved in integrated iron ore mining and steelmaking, has established itself as a leading force in industry consolidation. Cliffs has previously acquired AK Steel and the US operations of ArcelorMittal for a total of $6 billion.
An acquisition of US Steel would further solidify Cliffs’ dominant position. However, US Steel has rejected the offer for now, believing that a more favorable deal may be available.
US Steel was once a dominant force in the US, but deindustrialization and the influx of inexpensive Chinese steel exports undermined its position.
If Cliffs successfully acquires US Steel, the combined entity would produce 31 million metric tons of steel annually. Despite this, Cliffs emphasizes that it would only rank as the world’s tenth largest producer, possibly in anticipation of potential antitrust concerns.
Fortunately, US steel companies are now in a stronger position than before. The imposition of tariffs on cheap steel imports by Donald Trump, followed by Joe Biden’s onshore infrastructure initiatives, have boosted the prospects of companies like US Steel, Cleveland-Cliffs, Nucor, and Steel Dynamics.
A decade ago, Goncalves assumed leadership of Cliffs during the commodity supercycle downturn. The company, formerly known as Cliffs Natural Resources, subsequently exited the metallurgical coal business.
Goncalves suggests that US Steel shareholders should be enthusiastic about receiving Cliffs shares, which trade at a forward annual ebitda multiple of 5.6 compared to US Steel’s 3.5.
Cliffs aims to achieve significant cost savings and other benefits amounting to $500 million. By comparison, US Steel’s trailing fourth-quarter ebitda stood at $2.5 billion.
While Cliffs still needs to win over US Steel shareholders, it has already secured the support of labor union members. The United Steelworkers endorsed the deal on Sunday.
Fortunately, certain aspects have improved since the days of Carnegie, whose contentious relationship with trade unions continues to tarnish his legacy.
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