US Steel sparred with competitor Cleveland-Cliffs this week over technicalities in the company's labor agreement with the United Steelworkers (USW) after the union transferred its right to bid to the latter.
The dispute comes after US Steel rejected a cash and stock bid from Cliffs worth $7.3bn to purchase the Pittsburgh-based integrated steelmaker and amid a subsequent competing $7.8bn all-cash bid from Chicago-based Esmark.
Cliffs said the USW's labor agreement with US Steel gives the union "de facto veto power" over any deal. In practice, that would allow Cliffs, now acting with the union's right to bid, the ability to trump any competing bid for US Steel if it decides to sell.
US Steel has disagreed with that characterization.
"We are aware that the USW has transferred the right-to-bid provisions to Cleveland-Cliffs," US Steel told Argus today. "While the [labor agreement] provides the USW with successorship rights and the right to bid, it does not provide the USW or its assignee the right to veto any transaction."
Under the terms of its labor agreement with US Steel, the USW has the right to make a counter bid after receiving notice of an offer, as well as the ability to assign or transfer its rights to another entity, including a competitor like Cliffs.
In a letter published by Cliffs, USW international president Tom Conway officially transferred and assigned its right to bid exclusively to Cliffs.
But according to the labor agreement, US Steel is prohibited from entering into a sales agreement with any entity other than USW unless the transaction is superior to the USW offer.
Any buyer would also need to honor US Steel's existing agreements with USW or renegotiate a new labor pact, according to the current agreement.
The assignment of the USW's right gives Cliffs a strategic advantage for any potential takeover after its unsolicited bid on 13 August to buy the company for $17.50/share and 1.023 shares of Cliffs stock, a $35/share valuation, was rejected.
Cliffs said today that it "is the only realistic buyer able to acquire the totality of US Steel."
Cliffs' unsolicited bid kicked off a frenzy across the industry this week, which saw US Steel's stock surge and other company's including steel company Esmark come forward with unsolicited bids.
Esmark made an all-cash bid for US Steel stock on 14 August at $35/share with the company's chief executive James Bouchard claiming the following day to have cash on hand to close the $7.8bn deal.
Esmark has not said anything officially about a potential USW agreement. Bouchard said that he is "union friendly" in a televised interview on 15 August.
A combined Cliffs and US Steel company would have steel production of 34.2mn short tons (st)/yr and would rank as the 10th largest steel producer in the world, according to a Cliffs presentation on the potential deal. It would become the largest steel producer in the US, overtaking electric arc furnace-based (EAF) producer Nucor.
