By Jerry Burnes/Iron Range Today

U.S. Steel is up for sale and is exploring strategic options as potential bidders rise and fade from buying the Pittsburgh-based steel giant.

Cleveland-Cliffs is all-in to purchase its primary rival, but beyond them, there’s no clear-cut alternate bidder.

Esmark Inc. announced Thursday that it dropped its $7.8 billion cash offer on the company, a decision that comes after questions over founder James Bouchard’s cash-in-the-bank claims and after Cliffs said a labor agreement with the United Steelworkers made it privy to other official proposals on U.S. Steel.

It’s a fluid situation after the U.S. Steel board called Cliffs’ July 28 offer — a cash-and-stock proposal that would buy the company at a 42% premium — “unreasonable” and pivoted to seeking a “strategic alternatives process.”

There’s no timeline for U.S. Steel to make a decision on the Cliffs offer, or a deadline for other interested parties to submit a proposal. In the meantime, let’s breakdown some of the moving parts in the process, as its known now.

Why did the Cliffs offer become public so suddenly?

This was a strategic decision by CEO Lourenco Goncalves as it came hours after U.S. Steel’s rejection on Aug. 13.

The strategy is what’s called a “bear hug,” which makes public an offer to buy a company at a premium, without approval of its board. The idea is to use shareholders to pressure the board into accepting the deal or entering negotiations with the potential buyer, at risk of facing legal or board seat challenges, as directors are required to act in the fiduciary best interest of the shareholders.

In plain English: Cliffs is forcing U.S. Steel’s hand to consider its bid or run risk of either significant trouble, or having to explain to shareholders why it won’t entertain the offer. Doing it shortly after the rejection of its first bid applied the pressure immediately.

Look to Elon Musk buying Twitter as an example of a recent — and successful — bear hug acquisition (though Elon did try to wiggle out of that one).

Where do the United Steelworkers fit into this?

The Steelworkers are backing Cliffs in their effort, strengthening what’s been a rare management-labor Kumbaya story that’s developed over recent years.

Cliffs said the latest USW labor agreement with U.S. Steel has a provision that would allow the union to effectively veto a purchase deal it didn’t agree with. U.S. Steel CEO David Burritt doesn’t agree with that assessment saying in an Aug. 22 letter to the union: “But, let me be clear — the (basic labor agreement) does not grant the USW, or any party it assigns its right to, the right to prevent a potential transaction — with any party — that our Board decides is in the best interest of court stockholders.”

Axios wrote a neat synopsis of the USW’s potential position in a sale. Beyond that, the Steelworkers have enough clout to make life difficult for the company in a non-Cliffs version of a sale.

Is ArcelorMittal throwing its hat in the ring?

Reuters recently reported that ArcelorMittal was weighing a potential bid on U.S. Steel, but let’s take a step back on that report.

Arcelor sold its U.S. assets to Cliffs, including the Minorca Mine in Virginia, in 2020 and made a fine buck in the process. The Luxembourg-based company maintains operations in Canada and John Brett as its North American CEO, but buying back into the U.S. market at a large premium, for a relatively similar collection of assets that it sold, doesn’t seem to make the most financial sense. 

So why does Arcelor keep popping up when moves are ready to be made?

Think about it this way, if you’re a baseball trade deadline tracker: Every year that a superstar hits the trade market there’s a “mystery team” that always seems to emerge with interest. Arcelor has been the mystery team with Mesabi Metallics and the Nashwauk leases, but has never emerged as a serious bidder in those processes.

It might not be the same case this around, but tread lightly on the Arcelor talk.

What happened with the Esmark cash offer?

Esmark Inc., a privately-owned steel coating and distribution company, came out a day after Cliffs made its offer public with a proposal to buy U.S. Steel for $7.8 billion in cash. 

The company was always an awkward fit to takeover the mining-to-steelmaking portion of the process, and there were questions if founder James Bouchard (profiled here by The Wall Street Journal) actually had the cash — he claimed to have $10 billion in a bank ready for the sale and wouldn’t borrow against Esmark.

Alas, with the Steelworkers backing Cliffs and Cliffs pressuring U.S. Steel to name its proposals, the long-shot Esmark backed out.

“The U.S. Steel board must go through their process that they previously announced,” Bouchard said in a press release. “We wish them the best during this process, and we will evaluate any opportunities in connection with that process, subject to support from the USW.”

What about antitrust concerns?

Start with this Duluth News Tribune article that talks to an emeritus St. Scholastica professor who didn’t signal major antitrust red flags. 

Cliffs said it felt the regulatory hurdles would be cleared, and it’s possible the company knows it will need to negotiate the sale of some assets or other terms — and is willing to do so — to get a deal through. 

Now where do things stand?

Unless a new bidder emerges, or the ArcelorMittal interest is real, it is Cleveland-Cliffs versus itself at the moment. Goncalves was recently on CNBC talking about the offer.

The aforementioned bear hug is going to force U.S. Steel to do something, but they’ll remain in a holding pattern to map out the next steps forward.