Cleveland-Cliffs Inc (CLF.N) sought to convince U.S. Steel Corp (X.N) last month that its cash-and-stock acquisition offer was worth $1.4 billion more than an all-cash winning bid from Nippon Steel Corp (5401.T), a regulatory filing showed on Wednesday.
Nippon Steel beat Cleveland-Cliffs in a sale process for U.S. Steel with a $14.1 billion bid that was announced on Dec. 18. The deal price of $55 per share represented a whopping 142% premium to Aug. 11, the last trading day before Cleveland-Cliffs unveiled a $35-per-share bid for U.S. Steel.
U.S. Steel disclosed in the filing that in the auction process that ensued, a party referred to as "Company D" raised its cash-and-stock offer to $54 per share and also projected that synergies between two companies would deliver an additional $6.50 per share in value to U.S. Steel shareholders.
Company D is a reference to Cleveland-Cliffs, people familiar with the matter said. The steel maker did not immediately respond to a request for comment.
The filing sheds light for the first time on the U.S Steel board's deliberations that led it to declaring Nippon Steel's offer superior.
It shows that U.S. Steel was concerned that a combination with Cleveland-Cliffs risked being shot down by antitrust regulators because it would massively consolidate the supply of steel to U.S. automakers and put up to 95% of U.S. iron ore production under the control of one company.
Compounding such fears was a letter to U.S. lawmakers in October from a car manufacturer association warning that a sale of U.S. Steel to Cleveland-Cliffs could raise material costs and slow electric vehicle adoption, according to the filing.
To compensate for that risk, Cleveland-Cliffs agreed to a U.S. Steel request to pay it a $1.5 billion break-up fee should antitrust regulators block the deal, the filing shows.
However, Cleveland-Cliffs committed to divesting assets worth up to $2 billion in revenue to secure antitrust clearance, far less than divestments worth up to $7 billion in revenue that U.S. Steel's advisers recommended, according to the filing. U.S. Steel's labor union undertakings would also complicate the sale of individual facilities to secure antitrust clearance, the filing added.
U.S. Steel's board also considered the possibility that the divestitures could result in a loss of value for the combined company, in which U.S. Steel shareholders would own a substantial stake, the filing said.
Cleveland-Cliffs' reliance on issuing stock to pay for half its bid was also considered a risk by U.S. Steel, because it would require a vote by Cleveland-Cliffs' shareholders. Nippon shareholders do not get to vote on the deal because the company's bid is all-cash.
NIPPON STEEL ASSURANCES
To be sure, the filing shows U.S. Steel also had some concerns about Nippon Steel's ability to secure regulatory clearance. These pertained not to antitrust risk but to scrutiny from the Committee on Foreign Investment in the United States (CFIUS) which reviews deals for potential national security risks.
Nippon Steel addressed these concerns by committing to "all actions required" to obtaining CFIUS clearance, and to paying U.S. Steel a $565 million break-up fee if it failed to do so, according to the filing. U.S. Steel's advisers also found that Nippon Steel - which is headquartered in Japan, a key U.S. ally - would be unlikely to raise issues for CFIUS that cannot be resolved, the filing shows.
The White House has said Nippon Steel's proposed acquisition of U.S. Steel deserves "serious scrutiny", after some U.S. lawmakers said the deal threatens the supply of steel and jobs in the United States.
Nippon Steel has sought to allay those fears, promising to honor collective-bargaining agreements and maintain U.S. Steel's Pittsburgh headquarters. It has also said it does not expect the deal to result in any job losses.
Cleveland-Cliffs' commitment to preserving jobs at U.S. Steel won it the backing of the United Steelworkers union. The filing on Wednesday did not provide details on how Cleveland-Cliffs would have delivered $6.50 per share in value through deal synergies while honoring its commitments to jobs.
Cleveland-Cliffs indicated last month it had accepted the outcome of the sale process, wishing U.S. Steel "luck" in completing the deal with Nippon Steel.
