Iron ore miner and steelmaker Cleveland-Cliffs Inc. (NYSE: CLF) has not made an acquisition in almost three years. In 2020, the then-mining firm acquired two steel makers, AK Steel and Arcelor Mittal USA, the latter the U.S. portion of global steel giant ArcelorMittal. The two acquisitions cost Cliffs about $2.5 billion in cash and stock. The combined enterprise value of AK Steel and Arcelor Mittal USA was $6.3 billion, according to Cliffs.

On Sunday, Cliffs announced that United States Steel Corp. (NYSE: X) had rejected as “unreasonable” Cliffs’ offer to acquire U.S. Steel (USS) in a cash and stock deal valuing the company at $7.3 billion, a premium of 43% to USS’s closing price on Friday. The offer was first presented in writing to USS’s board and management on July 28, when the premium was 42%, according to Cliffs CEO Lourenco Goncalves.

In its own press release issued early Monday morning, U.S. Steel revealed that it had asked Cliffs and other potential partners “to participate in its previously announced strategic review process.” The steelmaker also said that it had received “multiple unsolicited proposals” ranging from acquiring certain assets to gobbling up the entire company.

USS may have a point, although it will be tough to persuade investors that getting a guaranteed $35 a share now, when the shares are trading at less than $15, is unreasonable. What has put U.S. Steel’s nose out of joint, apparently, is Cliffs’ refusal to sign a non-disclosure agreement before proceeding with further discussions unless U.S. Steel “agree[d] to the economic terms of [Cliffs’] proposal in advance.”

What is at stake is whether Cliffs can become the largest North American steel producer and the only North American producer in the global top 10 with annual pro forma production of 31 million metric tons of steel. China Baowu is the world’s largest producer, with 132 million metric tons. Arcelor Mittal ranks second with 69 million metric tons. The largest North American steelmaker currently is Nucor.

The jewel in the crown for Cliffs (or any other acquirer) is probably USS’s so-called mini mill in Big River, Arkansas. USS paid a total of about $1.5 billion to acquire Big River in 2019 and 2021, the only LEED-certified flat-rolled steel mill in North America. LEED certification (Leadership in Energy and Environmental Design) is a widely used green building rating system. Big River’s mill produces 65% less carbon dioxide emissions than a typical integrated steel mill. The mill produces 3.3 million metric tons of steel annually in its electric arc furnaces, more than all the steel produced in Cliffs’ four similar plants.

The domestic price for cold-rolled coil steel was almost $1,200 per net ton at the end of July, more than $300 higher than the price for hot-rolled band steel. Big River produces both, but the more expensive cold-rolled variety is used by automakers and oil and gas pipeline companies.

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Cliffs’ coup may be an agreement from the United Steelworkers (USW) to support the company’s bid for U.S. Steel. Under the company’s contract with the union, the USW “has the right to counter any proposal to acquire a controlling interest in USS or its facilities covered by the USW agreement.”

The union’s letter continues:

The USW has a very strong relationship with Cliffs and will not exercise this right of a counter offer. It will, rather, unequivocally endorse such a transaction. Moreover, the USW will not endorse anyone other than Cliffs for such a transaction.

According to the USW, Cliffs did not cut jobs when it acquired AK Steel and Arcelor Mittal and currently employs 14,000 union members. USS employs 11,000 union members.

In Monday’s premarket session, USS traded up 26% at $28.65, while Cliffs traded down about 3% at $14.25.

More than one observer has suggested that Cliffs could recover some of its purchase price by selling USS’s ticker symbol to Elon Musk’s X Holdings for several billion. Ha-ha.

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