United States Steel Corporation (NYSE:X) shares surged as much as 27% in pre-market Monday after the Pittsburgh-based company said it turned down a takeover proposal from Cleveland-Cliffs (NYSE:CLF).
Instead of proceeding with the takeover, U.S. Steel has announced plans to assess its strategic options in a thorough manner.
On the other side, Cleveland-Cliffs shares saw a decline of 7% after this announcement was made. The company offered $17.50 in cash along with 1.023 of its own shares for each share of U.S. Steel.
This unsolicited offer translates to approximately $32.53 per share, based on X’s closing price of $22.72 the previous Friday, which implies a 43% premium.
“At this juncture, we cannot determine whether your unsolicited proposal properly reflects the full and fair value of the Company,” David Burritt, president & chief executive officer of U.S. Steel wrote in a letter to CLF.
KeyBanc analysts said the offer “is more than fair and the proforma company would create the largest steel company in North America.”
“We view the probability of this deal getting done without meaningful concessions as low. This follows X's press release earlier today in which the Company announced it was initiating a formal review process to evaluate strategic alternatives,” they said in a note.
Wolfe Research analysts reiterated an Underperform rating despite a rally in X shares.
“[Shares] look expensive on normalized earnings, despite recent outearning that we don't envision being sustained,” the analysts said.
On the CLF bid, they commented:
“We note compelling aspects of CLF's bid for X, allowing it to grow and capitalize on X's large cash position into a period of lower expected earnings ahead. Yet the combination creates a behemoth sheet steel producer, and we suspect challenges from excess concentration.”