Potential Bids for U.S. Steel Keep Getting Weirder

A bid, if it happened, would be surprising. U.S. Steel is much larger than Stelco. The Canadian steel maker shipped about 2.6 million tons of steel in 2022, while U.S. Steel shipped about 15 million. Stelco’s enterprise value, including stock and debt, is about $1 billion. U.S. Steel’s is about $9 billion.

“That makes it an upstart and we suppose the key to handicapping its chances is knowing who it is partnered with. If that partner is an investor with deep pockets, we won’t be so quick to dismiss Stelco’s chances,” wrote Gordon Haskett analyst Don Bilson in a report Friday. “For now, however, we’re going to view it as a long shot.”

Stelco likely would need a partner to complete a merger.

The possible bid is surprising in another way, too. Stelco was actually once owned by U.S. Steel. The American firm bought it 2007 after Stelco filed for bankruptcy protection. Stelco filed for bankruptcy again in 2014 and was purchased by Bedrock Industries in 2017 before listing as a public company again later that year.

“Recent history has not been kind to companies that have tried to recombine with a former partner,” added Bilson, citing
Altria
(MO) and
Philip Morris International’s
(PM) attempt to re-merge in 2019 that “went nowhere” and
CBS
and Viacom’s combination.
Paramount
(PARA) shares are down about 70% since the merger plan was announced in August 2019.

That bids are emerging for U.S. Steel isn’t surprising, though. On Aug. 13, the company said it was exploring strategic options, which could include a sale of the company. Since then, steel maker
Cleveland-Cliffs
(CLF) and steel service center Esmark have announced bids.

Esmark processes and distributes steel, rather than producing it. The company didn’t announce financing with its bid and has dropped out of the process.

Global steelmaking giant
ArcelorMittal
(MT) was reportedly considering a bid. ArcelorMittal didn’t comment on a potential bid, which also would have been a little odd. Arcelor sold its U.S. operations to Cliffs in 2020.

U.S. Steel stock was about $23 a share before its announcement and bids started to emerge. The Cliffs bid, which is a mix of cash and stock, and is the only current bid with hard numbers attached to it, is currently worth $32.15 a share.

U.S. Steel stock was at $31.74 on Friday, up 1.6%. The
S&P 500
and
Dow Jones Industrial Average
were up about 0.4% and 0.1%, respectively. Stelco stock is rose 0.8%. Its shares are listed in Canada.

National Bank of Canada analyst Maxim Sytchev wrote Friday that he, like Bilson, sees Stelco needing a partner. “For the time being (and absent of anything tangible), we remain on the sidelines,” he added. Syychev rates Stelco shares Hold and has a $45 Canadian price target for the stock.

Write to Al Root at [email protected]