US Steel Corp. today confirmed that it has invited Cleveland-Cliffs Inc. to participate in its previously announced strategic review process, after the company rejected an initial acquisition proposal from the Ohio-based competitor.
In a press release, US Steel said it had received an unsolicited cash and stock proposal from Cleveland-Cliffs to acquire all of US Steel’s outstanding shares. Cleveland-Cliffs posted its own press release detailing the offer as follows: acquiring 100 percent of the outstanding stock of US Steel for a per share value of $17.50 in cash and 1.023 shares of Cliffs stock, for a total of approximately $7.3 billion.
In a letter written by US Steel CEO David Burritt to Cleveland-Cliffs CEO Lourenco Goncalves, Burritt said US Steel was “unable to properly evaluate the proposal because Cleveland-Cliffs refused to engage in the necessary and customary process to assess valuation and certainty unless US Steel agreed to the economic terms of the proposal in advance.”
In the letter, Burritt noted that advisors from US Steel indicated a “willingness to enter into an NDA (non-disclosure agreement)” so the company could “have further clarity on several key issues, including valuation of the stock component of your proposal, regulatory risk and timing as well as the prospects for the combined company.”
However, Burritt said that while US Steel discussed with Cleveland-Cliffs’ counsel questions that would address the antitrust risk of the proposal, further discussion has not happened. Additionally, Burritt said that after multiple conversations and engagement in “good faith negotiations,” US Steel was “shocked” to receive a letter on Friday, Aug. 11 that stated Cleveland-Cliffs refused to sign the NDA unless US Steel agreed to the economic terms of the proposal in advance.
As you well know, our Board—or any board—could not, consistent with its fiduciary duties, agree to a proposal of which 50 percent is represented by your stock without conducting a thorough and completely customary due diligence process, to evaluate the risks and potential upsides and downsides inherent in the transaction, including the stock component,” Burritt said in the letter.
Because US Steel could not determine whether Cleveland-Cliffs’ unsolicited proposal “properly reflects the full and fair value of the company,” Burritt concluded that US Steel has “no choice” but to reject the “unreasonable proposal.”
Cleveland-Cliffs said in a press release that under the terms of the United Steelworkers’ (USW) bargaining agreement with US Steel, the USW has the right to counter any acquisition proposal. Cleveland-Cliffs said the USW has affirmed in writing that it endorses the proposed transaction and will not counter it. Further, the letter from the USW (posted on Cleveland-Cliffs’ website) says the union will not endorse any company other than Cleveland-Cliffs for the proposed acquisition of US Steel.