Cliffs, US Steel interaction far from smooth, Reuters says

For those covering the steel and metals sector, the night of Sunday, Aug.13, was a memorable one because of the sudden issuing of press releases first from Cleveland-Cliffs and then from United States Steel Corp. about the former company’s bid to buy its fellow steelmaker.

About five weeks later, Reuters reports that Pittsburgh-based U.S. Steel remains dissatisfied with Cleveland-Cliffs in part because of the nature of how it went public with the offer.

According to a Sept. 20 Reuters report, “U.S. Steel Corp. is locked in a spat with rival steelmaker Cleveland-Cliffs Inc over a confidentiality pact that would allow the latter to participate in a sale process that is underway," citing people familiar with the matter.

The report says U.S. Steel has not “opened its books to Cliffs,” even though U.S. Steel in late August indicated it was engaged in reviewing multiple unsolicited proposals, ranging from the acquisition of parts of the company to consideration for acquiring all of U.S. Steel.

A letter from U.S. Steel President and CEO and David B. Burritt and board Chair David S. Sutherland on that date states, “While some companies undertake this kind of review privately, we chose to make it public to ensure that the process is as robust as possible and the board hears all options from any party that has an interest in our company.”

However, the Reuters report indicates resistance from U.S. Steel because Cliffs “will not agree to its conditions” in terms of how public to make the bid review process.

According to the news service, Cliffs has not yet signed a “standstill agreement” that would prevent the firm from challenging U.S. Steel's board of directors for a period of six months.

Reuters says U.S. Steel considers the standstill agreement a condition to allowing Cliffs to carry out due diligence and take part in a process that would grant access to all bidders on information pertinent to the sale process.

On the other hand, according to Reuters, Cliffs has opened its own books to U.S. Steel, acknowledging that much of its reported $7.1 billion offer is in Cleveland-Cliffs stock. Sources who have spoken to Reuters say Cliffs also has delivered letters to U.S. Steel from its potential backers Wells Fargo, JPMorgan Chase and Truist Securities demonstrating the commitment of those banks to fund its bid.

The Cliffs bid for U.S. Steel effectively would consolidate all blast furnace/basic oxygen furnace capacity in the U.S. in the hands of the Cleveland-based company, unless regulatory agencies made the sale of some assets a precondition to the merger.

Reuters writes in its Sept. 20 report, “It remains unclear whether U.S. Steel will agree to a deal with any party.” In a recent earnings guidance notice to investors, U.S. Steel did not mention the bids or the bidding process.

Cliffs and its CEO Lourenco Goncalves have made much of the company’s support from the United Steelworkers in making the case for its bid. The Reuters report also refers to Goncalves as a backer of the more labor-intensive BOF process in steelmaking, versus the now dominant electric arc furnace (EAFs) method, saying the CEO has indicated EAFs “cannot make the steel many car makers want.”