U.S. Steel Cage Match
If you are a fan of business history, there is a good chance U.S. Steel has a special place in your heart - as it does in mine. Started by J.P. Morgan in 1901, and laid on the foundation built by Andrew Carnegie, the company has played a critical role in America’s growth and industrialization.?
Now U.S. Steel is preparing for what looks like a career-ending fight.
Years of consolidation have brought the U.S. steel industry to the point where it is apparently too much to ask four domestic steel producers to co-exist profitably, despite protective tariffs and the Federal government’s “buy American” tax credit provisions.?
U.S. Steel has been on takeover watch for a while, with several quarters of falling revenue and lagging profitability resulting from rising material and energy costs. At this point, they have accepted the reality that a buyer needs to be found, whether for the business as a whole or for its component units.
In this week’s Dial P for Procurement, I examine this moment in U.S. Steel’s 122-year history for the cage match that it is.?
By WWE rules, there are four ways to win a cage match: pinfall (holding the opponent's shoulders to the mat), submission (yielding to the opponent), exiting the cage via the door, and climbing out over the top. U.S. Steel does not look positioned to achieve any of those outcomes - and they are facing a tag team of formidable opponents: fellow steel producer Cleveland-Cliffs and the United Steelworkers union.
“Stone Cold” Cleveland-Cliffs
On August 13th, U.S. Steel rejected an unsolicited $7.3 Billion takeover bid from Cleveland-Cliffs. Although it was not an unexpected turn of events, the offer and rejection made news - earning U.S. Steel’s diminished state a new level of media attention.
Nearly every story included the detail that U.S. Steel considered the offer “unreasonable.” Being a procurement professional, I automatically assumed that meant the offer had been aggressively low. Then I remembered the old rule of thumb about what happens when you assume…?and I went back to the source.
The company’s full quote is as follows: “At this juncture, we cannot determine whether your [Cleveland-Cliffs] unsolicited proposal properly reflects the full and fair value of the Company. For all of the above reasons, the Board has no choice but to reject your unreasonable proposal.”
As it turns out, the impasse is based on much more than a lowball offer.?
Cleveland-Cliffs’ offer included cash and shares. Before determining the appropriateness of their buyout valuation, U.S. Steel requested that Cleveland-Cliffs sign an NDA so information could be freely exchanged between the two companies.
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Cleveland-Cliffs responded that they would sign the NDA… as long as U.S. Steel accepted the terms of their offer first.?Unreasonable indeed.
U.S. Steel may be down, but they are not out. They saw Cleveland-Cliffs’ strategy for exactly what it was: an attempt to strong arm a lagging competitor into accepting an offer without having the opportunity to fully evaluate it, let alone negotiate further. They owe their legacy, employees, and shareholders better than that.
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“Ultimate Steel Warriors” Union
U.S. Steel politely (albeit publicly) declined Cleveland-Cliffs' offer. One day later, they received a higher bid from Esmark. That option was short-lived, however, as the United Steelworkers union spoke out against U.S. Steel being acquired by a non-union shop. Two weeks after submitting their bid, Esmark withdrew it.
If you’ve been following the news and reading or listening to Dial P coverage, then you know 2023 has not been a good year to mess with a labor union. The railway workers unions, Teamsters (at both UPS and Yellow Freight), United Autoworkers, and United Steelworkers are out in full force. They are the ‘kings of the ring’ you might say.
Late last year, the USW signed a new four-year contract with U.S. Steel that they say gives them absolute veto rights over any takeover offers. They have not just indicated their support for Cleveland-Cliffs, they have gone so far as to sign over their decision making authority to them.?
Unlike Esmark, Cleveland-Cliffs is a union company and apparently the only one that the approximately 11,000 unionized employees will support. They currently plan to veto all other offers, tying U.S. Steel’s hands. If the union had a ringside rallying slogan, it would be, “Our way or the highway.”
U.S. Steel disagrees with the USW’s interpretation of the contract, and while the Wall Street Journal recently suggested that U.S. Steel is on the right side of the law, their relative leverage and inability to engage in a prolonged legal fight make them unlikely to come out on top.
U.S. Steel survived two world wars, the energy crisis of the 1970s and multiple recessions. They have spun off non-core businesses, such as Marathon Oil Company, to become leaner and more focused, but each time in the ring left them a little more bruised.?
They are going through the process of requesting and evaluating bids for all or part of their operation and plan to review them carefully. U.S. Steel is sadly positioned to fade into business history rather than retaining the championship title they once held.
President, Black Swan Textiles
1 年Very well written. Yet sad
SR.DBA at Infor
1 年This is heart breaking for me. My father worked at the US Steel Coal Mine for many years until it was shut down. The loss of that mine devastated the area and many families. US Steel was a great company and I will be sad to see them go.
Production Scheduler
1 年Makes you seariosly wonder if cleveland-Cliff padded the hands of #USW. To many times the workers still get the raw end of the deal. Union fees all around and workers are laid off and still lose their jobs. While the unions walk away with money in their pocket, from all us hard working men and women.
Critical Facilities Senior Project Manager at CBRE / Turner & Townsend
1 年This brought back memories of me and my family growing up in Sparrows Point, MD. My entire family worked at Bethlehem Steel! This plant employed over 30,000! Started in 1916 and shut down in 2012. When I was a teenager in the 80’s I wanted to work on the railroad at the Steel Plant and be an Engineer like my grandfather. He loved trains and I spent most of my childhood sharing his model railroading hobby. Those plans were crushed when the plant started shutting down. My grandfather was lucky to get his full retirement from the railroad not a 401k and I left home and joined the Navy. We need to bring back the American ???? Industry bigger than before, reinstill pride in every citizen, give people hope and purpose! We must not let the American dream of belonging, owning and raising a family get lost in this mess that we are in now. How do we defend our country being dependent on foreign resources? You don’t, and I don’t want myself or my children to live long enough to find out! Thanks for a great post and good memories!