US M&A: Goncalves wants to make Cleveland America’s steel hub

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Andrew Carnegie made Pittsburgh the epicentre of American steel production in the 19th century. Lourenço Goncalves wants Cleveland to become steel’s US hub in the 21st century. To that end, Ohio’s Cleveland-Cliffs, headed by Goncalves, has announced a $10bn unsolicited cash-and-stock offer for US Steel.

This Pittsburgh-based target company traces its roots to Carnegie himself. This original “robber baron” is remembered both as a merciless capitalist and a principled philanthropist.

Cliffs shares have risen 50 per cent in the last five years. The integrated iron ore miner and steelmaker has become an industry consolidator. In recent years, Cliffs bought AK Steel and the US operations of ArcelorMittal for $6bn in total.

Adding US Steel would reinforce the kingpin status of Cliffs. The former has rebuffed the offer for now, believing a better deal may be out there.

US Steel was once a dominant US company. But deindustrialisation followed by cheap Chinese steel exports undermined this.

If Cliffs buys US Steel, the combination would produce 31mn metric tons of steel annually. But that would only make it the world’s tenth biggest producer, as Cliffs points out, perhaps with an eye to any antitrust objections

However, US steel companies are in a much better position than previously. Donald Trump’s tariffs on cheap steel imports are one reason for that. More recently, Joe Biden’s onshore infrastructure programmes have boosted prospects for the likes of US Steel, Cleveland-Cliffs, Nucor and Steel Dynamics.

Goncalves took over Cliffs a decade ago amid the commodity supercycle bust. The company, formerly known as Cliffs Natural Resources, then ducked out of the metallurgical coal business.

US Steel shareholders, Goncalves said, should be excited to take Cliffs shares, which trade at 5.6 times forward annual ebitda, compared with just 3.5 times for its target.

Cliffs aims to hit a juicy $500mn in cost savings and other benefits. For comparison, US Steel’s trailing fourth-quarter ebitda was $2.5bn.

Cliffs still has a lot of work to do to win over shareholders in US Steel. But it has already sewn up the support of trades unionists. The United Steelworkers backed the deal on Sunday.

Some things have changed for the better since the days of Carnegie, whose bloody conflicts with trade unions still mar his memory.