U.S. Steel Rejects $35 Bid, Gets $55 Offer Amid Job Worries

U.S. Steel's decline to 27th globally prompts strategic shifts, facing political hurdles in a $55-a-share Nippon Steel takeover bid.

By Jack Wilson

4/17, 01:17 EDT
Cleveland-Cliffs Inc.
Nucor Corporation
United States Steel Corporation

Key Takeaway

  • U.S. Steel's decline from 12th to 27th largest globally highlights its struggle in a competitive industry.
  • Rejected a $35/share bid from Cleveland-Cliffs, later receiving a $55/share offer from Nippon Steel, facing political opposition.
  • Political concerns focus on job security for U.S. Steel's 22,000 global workforce amid foreign takeover fears.

Historical Decline

U.S. Steel, once a symbol of America's industrial might, has seen a significant decline in its position within the global steel industry. From being the world’s 12th-largest steel company a decade ago, it has fallen to the 27th position. This decline is attributed to various factors, including diversification into chemicals and oil in the 1980s and competition from companies like Nucor, which adopted innovative steel production methods. The shift in steel production to regions where it is most needed, notably China, has also contributed to U.S. Steel's reduced market share. The company's struggle as a relatively high-cost player in a mature, commodity-oriented industry has led to a cycle of fewer shipments, lower profits, and reduced capital spending.

Strategic Shifts and Takeover Bid

In response to its declining fortunes, U.S. Steel explored strategic options in August, rejecting a $35-a-share bid from Cleveland-Cliffs. The bidding war, which likely included Nucor and Esmark, concluded with Nippon Steel's winning offer of $55 a share in cash. This proposal was seen as a positive move for U.S. Steel, promising an infusion of capital and technology from Nippon, the world’s fourth-largest steelmaker. However, the deal faced significant political opposition in the U.S., with bipartisan concerns over the loss of a historic American company to foreign ownership. President Joe Biden's criticism of the takeover on March 14 led to an 18% drop in U.S. Steel shares over two days.

Political and Economic Implications

The political resistance to the Nippon Steel deal centers on job security for U.S. Steel's workforce, which includes some 22,000 workers globally, with 14,000 in North America. The company's role as a significant employer, especially for union-represented workers, underscores the broader concerns about the future of the U.S. steel industry, which employs fewer than 100,000 workers nationwide. Despite the industry's relatively small size, with a market capitalization of about $90 billion for the four largest U.S. steel producers, the potential impact of U.S. Steel's struggles on the American economy and labor market is a point of contention.

Street Views

  • Timna Tanners, Wolfe Research (Neutral on U.S. Steel):

    "We don’t see any scenario where U.S. Steel would take an alternative offer below our new $46 price target."