United States Steel Corp. rejected a more than $7 billion buyout offer on Sunday from a mining company and rival steel producer based in Ohio.
Pittsburgh-based U.S. Steel announced that it had rejected a $7.3 billion buyout offer from Cleveland Cliffs Inc. following a strategic review process with outside financial and legal advisors that determined the company’s recent proposal had failed to fully maximize shareholder value.
Despite the unsolicited cash and stock proposal, U.S. Steel was not able to conduct a proper evaluation due to a general refusal by Cleveland Cliffs to engage in the process unless the company’s economic terms were agreed upon in advance.
“At this juncture, we cannot determine whether your unsolicited proposal properly reflects the full and fair value of the Company,” read the letter from David Burritt, president and CEO of U.S. Steel, to Cleveland Cliffs CEO Lourenco Goncalves. Therefore, “the Board has no choice but to reject your unreasonable proposal.”
After assessing the merits and risks of the proposal with advisors, the board determined that it could not reach an agreement on the proposal without first conducting a thorough and customary due diligence process, as is consistent with its fiduciary responsibility to investors.
“Doing otherwise would be tantamount to accepting a price without knowing what it in fact represents… Pushing our Board to do so is in essence a demand that it breach its fiduciary duties,” the letter read.
According to the terms of the buyout proposal, Cleveland Cliffs had offered to buy U.S. Steel based on a total cash value of $35 a share. The value was split between two offerings, consisting of $17.50 a share in cash and slightly more than one share’s worth of Cleveland Cliffs common stock (NYSE: CLF).
The share price for U.S. Steel (NYSE: X) ended the trading session on Monday at $31.08, slightly below the $35 premium offered by Cleveland Cliffs in the proposal.
Although the U.S. Steel Board rejected Cleveland Cliffs’ unsolicited proposal, board members continue to remain committed to maximizing value for stockholders.
To that end, the board has “decided to initiate a formal review process to evaluate strategic alternatives,” the letter to Lourenco said.
As part of the formal review, U.S. Steel will assess several key issues, including the valuation of the stock component, regulatory risk and timing, and the growth prospects for the combined company.
The Dallas Express reached out to Tara Carraro, senior vice president and chief communications officer at U.S. Steel, but did not hear back by the time of publishing.
