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Esmark makes offer for US Steel after Cleveland-Cliffs proposal rejected

The smokestacks of US Steel - which was the source of Gary, Indiana's meteoric rise at the turn of the century and collapse in the 1970s - are seen on Nov. 2, 2011. (Mira Oberman/AFP via Getty Images)

Video with this story is from News 8 at 5:30 p.m. Aug. 14, 2023

New York (CNN) — Another rival steel producer has jumped into the bidding war to take over Pittsburgh-based US Steel.

Esmark announced an all-cash public offer for US Steel for $35 per share on Monday.

Esmark said its offer period runs from Monday to Nov. 30 but may be extended.

James Bouchard, CEO of Esmark, who is a former US Steel executive, said in a statement that this is an “exciting time” for the American steel industry and “with Esmark’s long-standing history of excellence, we are anxious to continue to grow and we’re well positioned to come in and operate.”

The offer comes hours after news that rival Cleveland-Cliffs was in talks to purchase of US Steel.

Shares of US Steel surged double-digits in early trading Monday, and jumped even higher after news of Esmark’s offer, jumping by nearly 40%.

Although Esmark offered $35 a share, US Steel’s stock was hovering below $32. That is often an indication that investors are skeptical about a deal getting finalized.

Esmark, which has a number of steel interests in its portfolio, noted in its statement that the deal would be “subject to regulatory and antitrust clearances.”

Cleveland-Cliffs’ offer

US Steel (X) said it has rejected the proposal but Cleveland-Cliffs (CLF), which is already the nation’s No. 2 steelmaker behind Nucor (NUE), said it will continue to pursue the deal.

Cleveland-Cliffs proposed paying $17.50 a share in cash, and 1.023 shares of Cliffs stock for each US Steel share. Based on Friday’s closing price, that would be worth $32.53 for each US Steel share, an increase of 43% from US Steel’s Friday closing price.

US Steel said Sunday that it has received “multiple unsolicited proposals” ranging from the acquisition of certain production assets to a purchase of the whole company and that it started a strategic review of its options.

US Steel said that it had been in discussion with Cleveland-Cliffs about its offer, but that those private talks broke down Friday with Cleveland-Cliffs’ refusal to sign a nondisclosure agreement, or NDA, that would allow the two companies to exchange financial information.

US Steel said Cleveland-Cliffs demanded it agree to the proposed economic terms of the deal in advance. US Steel said it needed the NDA to evaluate the value of the stock that Cleveland-Cliffs was proposing to use in the purchase before it could agree to the terms.

Cleveland Cliffs said that it still believes it can do the deal, despite US Steel’s rejection.

“Although we are now public, I do look forward to continuing to engage with US Steel on a potential transaction,” said Cleveland-Cliffs CEO Lourenco Goncalves in a statement Sunday.

It also released a letter Sunday from the United Steelworkers union, which represents 25,000 workers between the two companies, that endorsed the proposed deal. Under its contract with US Steel, the Steelworkers union has the right to make a counteroffer for an employee buyout of US Steel should it receive a purchase offer. Its letter said it will not exercise that right should Cleveland-Cliffs purchase the company, and that it would oppose any other potential purchase offer for US Steel.

A spokesperson for the Steelworkers, R.J. Hufnagel, told CNN that the union does not yet have an additional comment in light of Esmark’s offer.

Cleveland-Cliffs produced 16.8 million tons of steel in 2022, while US Steel produced 11.2 million tons at its U.S. operations and another 3.7 million tons in Europe. Nucor produced 21 million tons, according to industry rankings and company reports.

Cleveland-Cliffs and US Steel are the two U.S. steelmakers that make most of their steel from raw materials, while Nucor makes its steel primarily from melting steel scrap to produce steel. Cleveland-Cliffs and US Steel are the only two major unionized companies in the U.S. steel industry.