Esmark Offers to Buy US Steel for Cash, Trumping Cliffs

(Bloomberg) — Steel processor and distributor Esmark Inc. offered to buy United States Steel Corp. for $7.8 billion in cash, trumping an earlier bid from Cleveland-Cliffs Inc. and raising the stakes in a battle for the future of the US industrial icon.

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The announcement by privately held Esmark has surprised many market watchers — the company’s steel business is focused on processing and distributing rather than the raw metal that US Steel produces, making it an unlikely buyer. Esmark chief executive officer and owner James Bouchard, a one-time US Steel executive, said in a phone interview that the company has available cash on hand to fund the offer.

US Steel shares spiked further on the new bid to close 37% higher, its biggest one-day increase on record. Still, the closing price of $31.08 a share remains below the $35 a share being offered by Esmark.

The Esmark announcement is the latest twist in a rapidly evolving saga that has the potential to reshape the domestic steel landscape. US Steel, which traces its roots back more than a century and was America’s first $1 billion company, announced Sunday it had started a strategic review of alternatives after rejecting the $7.25 billion offer from rival Cliffs. The company said it had received multiple approaches for part or all of its business and appointed advisers for the review.

The news sent US Steel shares soaring on Monday morning, as Cliffs CEO Lourenco Goncalves insisted in television interviews he was confident his bid would succeed, citing the backing of the influential United Steelworkers union.

However the bigger bombshell was still to come. In a statement thin on details, Esmark announced a “voluntary public cash and exchange offer” for US Steel, which it said would run until Nov. 30 and could be extended.

“The Esmark bid is a shocker. I would expect that we would see some other steelmakers come into play before what is a traditional service center,” said Josh Spoores, the principal steel analyst at industry consultant CRU. “I don’t know what to make of it. It’s a head scratcher.”

Commenting on the announcement, a US Steel spokesperson said it was the first that the company had heard from Esmark. “We welcome them to join the multiple parties already in our previously announced strategic alternatives process.”

Bouchard said that his offer was motivated by a desire to ensure US Steel remained American owned after the weekend’s announcements.

“They’ve made huge strides, but we have a lot of work to do and we can make US Steel US Steel again,” he said. “This needs to stay an American institution.”

Esmark made headlines over a decade ago when it sold its steel assets to Russia’s OAO Severstal in 2008, before repurchasing three processing plants that were part of the earlier deal in 2010. However, those deals were dramatically smaller than the bid it has announced for US Steel.

The company said on Monday it is a leading processor and distributor of value-added flat-rolled steel in the US and the third-largest domestic producer of tin plate steel.

US Steel is one of the icons of US industry, tracing its roots back to 1901 when J. Pierpont Morgan merged a collection of assets with Andrew Carnegie’s Carnegie Steel Co.

Under CEO David B. Burritt, who took the helm of the then struggling metal producer in 2017, the company has shifted its investment focus to furnaces that remelt scrap into steel, rather than creating metal from iron ore as it has for more than a century.

(Updates with comment from Esmark CEO, US Steel spokesperson.)

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