Al Root

The battle for U.S. Steel took a bizarre turn on Monday as jilted merger partner Cleveland-Cliffs held a press conference in Pennsylvania.

A combative Cleveland-Cliffs CEO Lourenco Goncalves spoke for about an hour and 40 minutes, and while the speech was difficult to parse, there was good news for investors -- a deal is likely, even if it isn't what they expected.

The reason for the conference was the ongoing battle for U.S. Steel. Cliffs bid $35 a share in cash and stock for U.S. Steel in August 2023. Cliffs later raised that bid to $54 in cash and stock. Still, U.S. Steel's board decided to take a $55 all-cash bid from Nippon Steel in December 2023.

One of the reasons U.S. Steel opted for Nippon -- aside from the money -- was a U.S. Steel-Cleveland Cliffs tie-up was likely to receive antitrust scrutiny. Cleveland-Cliffs and U.S. Steel are the second- and third-largest American steel makers, respectively. Nucor is No. 1. A combination of U.S. Steel and Cleveland-Cliffs would create a steel maker with roughly 30% to 40% domestic market share.

Alas, while investors liked the Nippon bid, a Japanese company was trying to buy a U.S. company with operations in a swing state during a presidential election year. The deal faced political headwinds from both sides of the aisle from the start.

Goncalves leaned into the politics -- and other topics -- on Monday. During his talk, he said "Japan is evil," charged that Japanese steel makers helped build the Chinese steel industry and that they taught Chinese steel makers how to dump steel into foreign markets.

Those are some of the highlights. It was a lot. Cliffs didn't respond to a request for comment about Goncalves' statements.

Goncalves echoed President-elect Donald Trump in his speech, making a commitment to "make American steel great again." Goncalves may want to ensure Trump doesn't overturn President Joe Biden's January decision to block the Nippon-U.S. Steel merger on grounds of national security.

U.S. Steel CEO Dave Burritt may also be trying to appeal to Trump, wrote Gordon Haskett analyst Don Bilson in a Monday report.

"Ever since U.S. Steel CEO Dave Burritt went ballistic on Jan. 3 by calling Biden's decision 'shameful and corrupt,' we've sensed that he is trying to appeal to Donald Trump's dislike for Biden," Bilson wrote. "His selection of the word 'Corrupt' to describe Biden's action was not by accident."

U.S. Steel is suing to overturn the decision, alleging proper procedures weren't followed.

"This decision looks political, tied to economic security, and not underpinned by serious unresolvable national security concerns," said Jenner & Block attorney Alexis Early in an emailed statement.

Goncalves argued U.S. steel producers should be larger to better compete with global firms. Goncalves also indicated the iron ore operations of any combined company would be named Cleveland-Cliffs -- iron ore is a key raw material in traditional steel making. The steel-making operations would be named U.S. Steel. He even said he would move to Pennsylvania.

For investors, the main takeaway should be that Goncalves is still interested in combining.

That doesn't tell investors what price Cliffs might pay if Nippon -- the world's fourth-largest steel maker -- exits the scene. Something between the original $35 bid and the $54 bid is a reasonable starting point. Investors should also be ready for a cash and stock offer.

Goncalves has run Cliffs since 2014, turning it from an iron ore producer into a large steel maker. He wants to get even bigger. He just might succeed.

If the price for his expansionary vision is right, U.S. Steel shareholders can still make out OK.

U.S. Steel stock closed up 6% at $36.34 in Monday trading while the S&P 500 added 0.2%. Shares were about $47 apiece in March 2024 just before Biden indicated he was likely to block the Nippon deal.

Write to Al Root at allen.root@dowjones.com

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January 14, 2025 03:42 ET (08:42 GMT)

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