U.S. Steel Corp. began a formal review of its strategic options on Sunday after declining a $7.3 billion buyout offer from rival steelmaker Cleveland-Cliffs Inc.
Cliffs made its offer public after U.S. Steel rejected the bid and announced a formal review process, Reuters repoted. U.S. Steel said it has received multiple bids for parts or all of its business.
“At this juncture, we cannot determine whether your unsolicited proposal properly reflects the full and fair value of the Company,” U.S. Steel CEO David Burritt wrote in a letter to Cliffs CEO Lourenco Goncalves. “For all of the above reasons, the Board has no choice but to reject your unreasonable proposal.”
Cliffs said in a statement it “feels compelled to make its offer publicly known for the direct benefit of all of U.S. Steel’s stockholders and also make it known that Cliffs stands ready to engage on this offer immediately.”
Cliffs said it offered to pay $17.50 in cash and 1.023 shares of its own stock for each U.S. Steel share, implying a 42% premium to U.S. Steel’s closing share price on July 28 when Cliffs privately reached out to the company.
A merger between the two companies would create a global steelmaking giant and help it become a bigger competitor in an industry largely dominated by China.
Cliffs’ offer came after U.S. Steel reported its fifth consecutive quarter of profit declines and a fourth straight quarter of dropping revenue.
U.S. Steel’s second-quarter revenue surpassed analysts’ forecasts, but the company’s shares were still trading on a weak 5.7 price-to-earnings ratio, which falls below the sector median of 9.0, and its shares are down roughly 9.3% year-to-date.
Cliffs has been among the most active in the industry in acquiring companies in recent years. In 2020, Cliffs purchased AK Steel Holding Corp. and the U.S. business of steelmaker ArcelorMittal.
“Although we are now public, I do look forward to continuing to engage with U.S. Steel on a potential transaction, as I am convinced that the value potential and competitiveness to come out of a combination of our two iconic American companies is exceptional,” Goncalves said.
Cliffs said its offer to U.S. Steel received the support of the United Steelworkers union, the largest steel industry union in North America. Cliffs said it also prepared debt financing for the proposed deal from several banks.
U.S. Steel confirmed later on Sunday it received offers from Cliffs and other interested buyers.
“U.S. 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 U.S. Steel agreed to the economic terms of the proposal in advance,” the company said in a statement.
Reuters contributed to this report.