U.S. Steel shares jump after unsolicited bid from Cleveland-Cliffs

By Priyamvada C

(Reuters) -Shares of U.S. Steel jumped about 27% in early trading on Monday, after the steelmaker rejected a $7.3 bln buyout offer from Cleveland-Cliffs (NYSE:) but said it would review its options following “multiple unsolicited proposals” from other unnamed bidders.

Even though U.S. Steel has so far rejected entreaties from Cleveland-Cliffs, shares surged on Monday, reflecting expectations that the Pittsburgh-based steel company could be acquired after several consecutive quarters of falling revenue and profit owing to high raw material and energy costs.

The U.S. Steel stock traded at $28.80 in early Monday action, lower than the offer from Cleveland-Cliffs, the largest flat-rolled steel producer in North America, as the investors doubt a deal may not happen at that price.

The company on Sunday offered to buy U.S. Steel in a cash-and-stock deal valued at $35 per share, or a 43% premium to U.S. Steel’s last closing price.

Shares of Cleveland-Cliffs rose about 2% in early trading.

U.S. Steel, however, said it has invited Cleveland-Cliffs to be a part of the review process.

“CLF appears like the only logical acquirer for 100% of ,” said Citi analyst Alex Hacking, adding that the company is worth more to Cleveland-Cliffs than anyone else.

If the two firms were to combine, it would be the largest steel producer in North America, the 10th-largest producer in the world, and a dominant supplier to the transportation sector, KeyBanc Capital Markets analyst Philip Gibbs said in a note.

“We view the probability of this deal getting done without meaningful concessions as low,” Gibbs added.

Despite concerns around antitrust regulations, analysts at B. Riley believe that Cleveland-Cliffs is “well positioned” to offer the most compelling economics.

NYMEX U.S. Midwest Hot-rolled steel futures have fallen about 9% so far this year, but remain above pre-pandemic levels.

Cleveland-Cliffs has been betting on acquisitions to bolster growth and take on competition from China – it bought AK Steel and the U.S. business of ArcelorMittal (NYSE:) in 2020.

The company went public with its offer after U.S. Steel rejected the bid as being “unreasonable” and instead announced a formal review process and said it received multiple bids for parts or all of its business.