As United States Steel evaluates its strategic options, investors and analysts on Wall Street are contemplating potential partnerships within the industry. While the stock market responds to these developments, it is important to scrutinize the various ideas being proposed.
Citi analyst Alexander Hacking recently assessed a few potential bidders for U.S. Steel (ticker: X), which announced on August 13th that it was exploring strategic alternatives. This term is often used on Wall Street to imply the consideration of a company sale or the divestment of certain assets.
Among the new ideas circulating is a joint bid between Stelco (STLC. Canada) and Nucor (NUE). Stelco, which reportedly expressed interest in September, has not yet issued a comment regarding their potential bid.
Considering that U.S. Steel is significantly larger than Stelco, it initially seemed unlikely for the latter to bid alone. However, Nucor, being the largest steel producer in the U.S., could potentially play a role in this partnership.
Nucor has refrained from commenting on any potential deals so far, indicating that a bid may not be of interest to them—and for valid reasons.
If Nucor were to acquire the entire company, it would assume traditional steel assets such as blast furnaces, which are not present in Nucor's operations. Furthermore, this acquisition would introduce a union presence to a nonunion company like Nucor, potentially disrupting its culture that is primarily based on variable compensation.
U.S. Steel owns some nonunion minimill assets in Arkansas—smaller facilities that utilize scrap and other metals to produce steel, rather than relying on raw materials like iron ore and coal. Nucor specializes in operating minimills.
According to Hacking, Nucor would most likely be interested in acquiring these minimill assets at the right price. Nevertheless, U.S. Steel is unlikely to accept a low offer, considering the modernity and quality of its minimills.
Even if the minimills were to be separated from U.S. Steel and potentially made available for purchase, it still would not make the company small enough for Stelco to effectively acquire it.
Hacking also reviewed another potential bid, which involved ArcelorMittal (MT) and Nippon Steel (5401. Japan) joining forces. Unfortunately, neither company has promptly responded to a comment request, leaving the market uncertain about the possibility of such a transaction.
In summary, as United States Steel considers its strategic options, analysts are closely monitoring the emerging potential bidders within the industry. While some ideas may not come to fruition, one combination seems to make the most sense. Investors and market participants eagerly await further updates on this matter.
Potential Steel Merger: Antitrust Clearance Favorable for Cliffs, but Challenges Remain
Summary: While a potential merger between Cleveland-Cliffs (CLF) and U.S. Steel seems to have better prospects in terms of antitrust approval, there are still significant obstacles in the way. The bid from Cleveland-Cliffs has garnered support from the United Steelworkers, which represents numerous U.S. Steel employees. However, concerns about market concentration in the iron ore and automotive steel sectors could complicate the situation for antitrust lawyers.
Uncertainty Surrounds Potential Bidders
Steel stocks have experienced some volatility, potentially due to confusion surrounding multiple potential buyers for U.S. Steel. This uncertainty raises concerns that the final buyer may end up overpaying as a result of excessive bidding. As of late trading Thursday, Stelco shares were down by 4.4%, Nucor stock fell by 5.3%, Cliffs stock dropped by 4.4%, and U.S. Steel stock slid by approximately 1%. Meanwhile, the S&P 500 and Dow Jones Industrial Average both experienced declines of about 1.1% and 1%, respectively.
Cliffs Emerges as the Frontrunner
The bid put forth by Cliffs appears to be the most credible option thus far. Analysts are optimistic about the potential for strategic growth if Cliffs were to combine forces with U.S. Steel. According to Hacking, a market expert, he remains confident in his buy rating for Cliffs, highlighting the upside potential in a merger with U.S. Steel. He set a price target of $22 per share for Cliffs, significantly higher than the stock's closing price of $15.74 on Wednesday.
Speculation Abounds, Await News from U.S. Steel
Since August 13th, discussions surrounding mergers have included several players, such as Cleveland-Cliffs, Stelco, ArcelorMittal, Esmark (a steel service center), Nippon Steel, and Nucor. Rumors have been circulating, but concrete news may emerge when U.S. Steel reports its earnings on October 26th.