American Steel gets a new offering from Esmark. Why is its stock going down?
font size
Privately owned, Pittsburgh-based Esmark has announced an all-cash offer for United States Steel.
Sean Gallup / Getty Images
fight for
United States Steel
It rages on and investors aren’t sure what to do.
On Monday afternoon, Pittsburgh-based Esmark held a private event announce Cash offer of $35 per share for US Steel (ticker: X), about $7.8 billion in total. The bid came shortly after US Steel announced that it was looking for strategic alternatives after multiple bids for the entire company and assets. peers in the steel industry
Cleveland Cliffs
(CLF) was one such bidder, revealing a cash and stock offer of $35 a share on Sunday.
Investors may prefer cash bids. You don’t have to worry about the performance of other company stocks. US Steel rejected the Cleveland Cliffs’ bid as inadequate. US Steel did not immediately respond to a request for comment on Esmark’s bid.
Shares of the famous steel company rose 37% on Monday, closing at $31.08. Cliffs stock gained nearly 9%. US Steel stock jumped another $2 after Esmark’s bid came to light. US Steel shares fell 0.9% in pre-market trading on Tuesday, while
Standard & Poor’s 500
And
Dow Jones Industrial Average
Futures are down about 0.6%.
Despite Monday’s gains, US Steel stock is still about $5 below the bid price for both the Cleveland-Cliffs and Esmark, showing, to some extent, that investors don’t quite know what to make of their bids.
In the case of the Cleveland Cliffs, market concentration could be an issue. “Most obviously, Proforma (Cleveland-Cliffs and US Steel) will effectively control 100% of the US iron ore market,” KeyBanc analyst Philip Gibbs wrote in a recent report. “Second, Cliffs is currently the largest supplier of steel in the automotive category in the USA, while US Steel ships larger volumes of volume to the automotive (and) transportation market in 2022.”
In the case of Esmark, the investors were unfamiliar with the company and it is primarily a steel service center, buying steel from mills like US Steel and processing materials for customers. Steel service centers closer to industry distributors.
Service centers can be great.
Reliance Steel and Aluminum
(RS) has a market capitalization of nearly $17 billion, more than US Steel and Cleveland-Cliffs combined. Reliance’s market cap is easy to find. It is publicly traded. Another story is that of Esmark subject to retention.
It’s a bit surprising that a private distributor would make an offer for one of the country’s largest steelmakers. Steel distribution is a different business, and it usually requires less capital than a full steel manufacturing operation.
But Esmark founder James Bouchard has 40 years in the steel industry and is a former US Steel executive.
Regarding financing, an Esmark spokesperson said Barron in an emailed statement that the company and Bouchard had the money to bid.
Write to Al Root at allen.root@dowjones.com
