How U.S. Steel became an acquisition target
By Anirban Sen and David Carnevali
NEW YORK (Reuters) — U.S. Steel Corp attracted acquisition interest after short-term challenges, including upgrading furnaces and potential car production shutdowns, weighed on its valuation, according to people familiar with the deliberations of its suitors.
The Pittsburgh-based company, which has a market value of $6.8 billion, is exploring its options amid acquisition offers from other industry players, including Cleveland-Cliffs (NYSE:CLF) Inc and Esmark Inc. Reuters reported on Wednesday that ArcelorMittal (NYSE:MT) SA was also studying a potential bid.
Prior to disclosing the takeover interest on Aug. 13, U.S. Steel's shares were undervalued compared to many of its major peers. The company's market value, including net debt, was equivalent to 3.6 times its projected 12-month earnings before interest, taxes, depreciation and amortization (EBITDA), compared to 5 times for Cleveland Cliffs .
Two other U.S. rivals, Nucor Corp (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) Inc, trade at 6.9 times and 5.8 times, respectively, according to Refinitiv data.
This discount, combined with a desire to grow market share and realize cost synergies, pushed Cleveland-Cliffs to approach U.S. Steel with an offer last month, and Esmark to follow suit, the sources said. These two companies' offers both value U.S. steel at 6.2 times its 2024 EBITDA, according to RBC Capital Markets analysts.
Some of the valuation discount is likely temporary and partly the result of U.S. Steel's current capital expenditure, the sources and analysts who cover the company said.
U.S. Steel has said it will spend about $2.5 billion in 2023 — about as much it posted in net earnings in 2022 — on its equipment, including
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