Investors following the battle for United States Steel (USX) have been left surprised once again. On Thursday, the United Steelworkers (USW) made a significant move by supporting a bid from Cleveland-Cliffs (CLF) to acquire USX. In doing so, the union assigned its right to bid for the steel company to Cliffs, creating a new dynamic in this ongoing saga.
The union's decision carries weight due to the existing agreement between USX and USW. According to this agreement, if the union submits a bid, the company is prohibited from accepting any other offers unless the board deems them superior. Furthermore, the labor agreement stipulates that any potential buyer must first reach a deal with the union before moving forward with the acquisition. As a result, the union now wields de facto veto power over a potential sale of the entire company, as stated by a spokesperson from Cleveland-Cliffs.
Approximately 80% of U.S. Steel employees in North America and Slovakia are covered by collective bargaining agreements, underscoring the significance of the USW's involvement in this process.
However, U.S. Steel has expressed reservations about the transfer of rights to Cleveland-Cliffs. The company spokesperson's emailed statement asserts that while the labor agreement does grant certain rights to the USW, it does not provide the union or its assignee with the power to veto any transaction. U.S. Steel remains committed to conducting a comprehensive review of strategic alternatives in order to maximize value for its stockholders.
Interestingly enough, it was U.S. Steel itself that initiated this unexpected acquisition drama. In an announcement on Sunday, the company revealed its pursuit of strategic alternatives after receiving "multiple bids" for either the entire company or some of its assets.
The battle for United States Steel continues to evolve, with unexpected twists and turns keeping investors and industry insiders on their toes. The involvement of the United Steelworkers and the assignment of bidding rights to Cleveland-Cliffs have added new dimensions to this ongoing saga. As the drama unfolds, it remains to be seen what the future holds for U.S. Steel and its potential acquirers.
Cleveland-Cliffs, Esmark, and ArcelorMittal Compete for U.S. Steel
Just recently, Cleveland-Cliffs made a significant announcement, revealing a cash and stock bid valued at $35. Following this, steel service center Esmark presented an all-cash bid of $35 per share. Meanwhile, there are reports stating that ArcelorMittal, a former owner of U.S. operations, is contemplating a bid as well. As of now, there has been no response from ArcelorMittal regarding these reports.
Union President Thomas Conway swiftly dismissed the potential ArcelorMittal bid as foolish upon hearing the news from Reuters. It comes as quite a surprise considering ArcelorMittal sold its U.S. operations to Cliffs just last year.
Despite all this activity, U.S. Steel stock experienced a slight increase of 0.8% in early trading on Friday. In comparison, the S&P 500 and Dow Jones Industrial Average saw a minor decline of 0.3% and 0.1%, respectively.
U.S. Steel stock has observed a considerable rise of about 26% over the course of the week. However, it is worth noting that shares are still trading slightly below the bids, indicating some uncertainty among investors about the eventual outcome.
There are certain factors contributing to this uncertainty. The potential merger between Cliffs and U.S. Steel raises concerns about market concentration, given these companies' prominent roles in the iron ore and automotive steel sectors. Additionally, it seems that the union is not in favor of ArcelorMittal's involvement. Furthermore, an analyst from Gordon Haskett, Don Bilson, pointed out that Esmark's bid lacks information regarding the financing of the estimated $7 billion to $8 billion purchase.
With all these developments, investors have much to consider. After a week filled with excitement, it appears that more drama awaits in the future.
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