ArcelorMittal is weighing a potential bid for US Steel

(Reuters) – ArcelorMittal SA, the world’s second-largest steelmaker, is considering a potential bid for US Steel Corp (XN), three people familiar with the matter said on Wednesday.

The merger would reverse ArcelorMittal’s withdrawal from the US as a production base after it sold most of its operations to Cleveland-Cliffs Inc (CLF.N) in 2020 for $1.4 billion to focus on developing markets such as India and Brazil.

The sources said ArcelorMittal is discussing a potential offer with its investment bankers, and there is no certainty it will go ahead with it.

If it launches a bid, it could mark an escalation of a bidding war already underway for US Steel, following competing bids from Cleveland-Cliffs and Esmark Inc for more than $7 billion.

The sources asked not to be identified because the deliberations are confidential. Representatives for ArcelorMittal and US Steel did not respond to requests for comment.

The US Steelworkers are members of the United Steelworkers (USW) union, which has come out in support of a deal with Cleveland-Cliffs despite US Steel dismissing the offer as “unreasonable”.

Union endorsement is important because your collective bargaining agreement with US Steel makes it a party to the negotiations and gives it the right to fight its claims.

Tom Conway, president of USW International, told Reuters that ArcelorMittal would be “foolish” to proceed with an offer and that the union would not endorse any buyers other than Cleveland Cliffs. He said he had not been happy with the way ArcelorMittal had treated workers in the past, without elaborating.

“I have no interest in talking to anyone else, and I would like US Steel to move the board and get this thing over with Cliffs,” Conway said.

Shares of US Steel rose 6.3% on news of ArcelorMittal bidding before pairing some gains on Union opposition, to end the trade 1.4% higher at $30.65. That compares to Cleveland-Cliffs and Esmark’s bids, which were worth $35 per share when submitted. Esmark offered all in cash, while the Cleveland-Cliffs would pay half of the deal in cash and half with their own stock.

ArcelorMittal’s deliberations come after US Steel said on Sunday it had begun a process to explore interest from potential buyers.

US Steel became a takeover target after several quarters of declining revenue and declining profits, as it struggled with rising raw materials and energy costs.

ArcelorMittal, like its peers, has also been grappling with slowing demand, as global economic growth slows. Last month, it reported second-quarter profit of $2.6 billion, half of what it was a year ago.

ArcelorMittal’s footprint in the US is currently limited to a joint venture with Nippon Steel Corp (5401T) in Alabama. They own a factory that produces sheet steel products by processing semi-finished products, or plates, purchased from domestic and foreign suppliers. They’re also investing about $1 billion in an electric arc furnace.

Morgan Stanley analysts said in a note on Wednesday that they found ArcelorMittal steel’s US trading at odds with its strategy to reduce carbon emissions and focus on growth in India and Brazil.

“We also see limited scope for cost synergies from such a transaction,” the analysts added.

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