U.S. Steel shares jump after Esmark makes $7.8-billion offer

By Priyamvada C

(Reuters) -U.S. Steel shares extended their rally on Monday after privately held firm Esmark made a $7.80 billion all-cash offer for the company, topping a rejected bid from Cleveland-Cliffs.

The offer from Esmark valued each share of U.S. Steel at $35, which represents a premium of 54% to the stock's $22.72 close on Friday. Esmark did not provide any details on how it plans to fund its takeover offer.

"This is the first (time) that we have heard from Esmark," a U.S. Steel spokesperson told Reuters.

"We welcome them to join the multiple parties already in our previously announced strategic alternatives process."

U.S. Steel shares had started Monday on a firmer note after the company said over the weekend it will review options after getting "multiple unsolicited proposals".

The rally reflected growing expectations of a takeover at the Pittsburgh-based steel company that has posted several quarters of falling revenue and profit in the face of high raw material and energy costs.

The company said on Sunday it rejected a $7.3 billion cash-and-stock offer from Cleveland-Cliffs, the largest flat-rolled steel producer in North America. It, however, said it has invited Cleveland-Cliffs to be a part of the review process.

"CLF appears like the only logical acquirer for 100% of U.S. Steel," said Citi analyst Alex Hacking, adding that the company is worth more to Cleveland-Cliffs than anyone else.

The United Steelworkers union also supports Cleveland-Cliffs' bid to acquire U.S. Steel, the union's international president, Thomas Conway, told Reuters in an interview, adding that the company is the best strategic buyer.

If the two firms were to combine, it would be the largest steel producer in North America, the 10th-largest producer in the world, and a dominant supplier to the transportation sector, KeyBanc Capital Markets analyst Philip Gibbs said in a note.

"We view the probability of this deal getting done without meaningful concessions as low," Gibbs added.

Despite concerns around antitrust regulations, analysts at B. Riley believe that Cleveland-Cliffs is "well positioned" to offer the most compelling economics.

NYMEX U.S. Midwest Hot-rolled steel futures have fallen about 9% so far this year, but remain above pre-pandemic levels.

Cleveland-Cliffs has been betting on acquisitions to bolster growth and take on competition from China - it bought AK Steel and the U.S. business of ArcelorMittal in 2020.

The company went public with its offer after U.S. Steel rejected the bid as being "unreasonable", announcing a formal review process instead, and said it received multiple bids for parts or all of its business.

The U.S. steel industry is protected by 25% tariffs imposed by former President Donald Trump in 2018 that have largely been kept in place by the Biden Administration.

The tariffs imposed on steel imports, mainly from China, increased U.S. domestic production and initially led to a drop in steel prices. However, increased demand left manufacturers grappling with shortages of the widely used metal and prices rose.

(Reporting by Priyamvada C in Bengaluru; Additional reporting by Reshma George and Arpan Daniel Varghese in Bengaluru and Bianca Flowers in Chicago; Editing by Saumyadeb Chakrabarty, David Gaffen, Shweta Agarwal, Pooja Desai and Shounak Dasgupta)