Acquisition likely for icon U.S. Steel as industry consolidates
With two bidders revealed in a matter of days and more in the wings, United States Steel Corp. — a symbol of American industrialization that for more than a century helped build everything from the U.N. building in New York City to the New Orleans Superdome — appears be on the cusp of being absorbed.
Here’s what has happened, and how the acquisition of U.S. Steel could reshape steelmaking globally.
Bidding war
After rejecting a $7.3 billion buyout proposal from rival Cleveland-cliffs on Sunday, U.S. Steel said it was considering its next move. On Monday, industrial conglomerate Esmark offered $7.8 billion for the Pittsburgh steelmaker.
Shares of U.S. Steel soared more than 30 percent Monday with good odds that bids for the 122-year-old steel producer will head higher.
U.S. Steel has said it has other offers to consider too, and the company gave no timeline for if and when it might make any decision about selling itself.
A potential giant
Cleveland-cliffs said its proposal, first made on July 28, would create a company that would be among the 10 biggest steelmakers in the world and one of the top four outside of China, which dominates global steel production. Cleveland-cliffs CEO Lourenco Goncalves said a tie-up between the two U.S. steelmakers would create “lower-cost, more
innovative and stronger domestic supplier for our customers.”
Goncalves said he is ready to continue talks with U.S. Steel despite its rejection of the company’s initial offer.
Cleveland-cliffs is the largest producer of flat-rolled steel and iron in North America. Acquiring U.S. Steel would shrink further the number of players in the U.S. steelmaking industry, which has experienced significant consolidation in recent years, including the two steelmakers at the center of developments this week.
The proposed acquisition would give Cleveland-cliffs control of about 50 percent of the domestic flat steel market and 100 percent of blast furnace production, Citi analysts wrote in a note to clients. It would
create “close to a domestic monopoly” on auto body sheet steel and close to 100 percent of U.S. iron ore.
That will most certainly garner the interest of antitrust regulators who, under the Biden administration, have raised the bar for mergers. Automakers and other big buyers of steel probably will push back over shrinking competition among U.S. steelmakers.
Higher steel prices, consolidation
Soaring prices have helped fuel consolidation in the steel industry in this decade. Steel prices more than quadrupled near the start of the pandemic to near $2,000 per metric ton by the summer of 2021 as supply chains experienced gridlock, a symptom of surging demand for goods and the lack of anticipation of that demand.
Cleveland Cliffs acquired AK Steel in 2019 right before steel prices began to spike, and within a year, it acquired Arcelormittal USA in 2020 for $1.4 billion. U.S. Steel bought Big River Steel the following year.
Prices have settled back to around $800 per metric ton, but that remains at the top end of the spectrum for steel prices over the past six years. An extended economic rebound, particularly in the U.S., has helped keep prices for flat-rolled steel elevated.
U.S. Steel history
U.S. Steel has been a symbol of industrialization since it was founded in 1901 by J.P. Morgan, Andrew Carnegie and others, and the domestic steel industry dominated globally before Japan, then China, became the pre-eminent steelmakers over the past 40 years.
The company survived the Great Depression and became an integral part of U.S. efforts in World
War I and II, supplying hundreds of millions of tons of steel for planes, ships, tanks and other military gear, in addition to steel for automobiles and appliances.
During the late 1970s and early 80s — amid an energy crisis and multiple recessions — U.S. Steel cut production and spun off many of its other businesses. With oversupply and an influx of lower-priced steel imports dragging down prices into the new century, the company reorganized in 2001 and separated its energy business, which became Marathon Oil Corp.