Tension is brewing in the steel industry as an influential asset manager, Ancora Advisors, takes steps to block the controversial takeover of U.S. Steel by Nippon Steel. After acquiring a modest 0.18% stake in the Pittsburgh-based steel giant, Ancora is making bold moves to ensure a reshaping of the company's future trajectory.
Ancora's opposition comes in the wake of a federal lawsuit already filed by Nippon Steel and U.S. Steel against the Biden administration's decision to halt Nippon's proposed $15 billion acquisition. The lawsuit highlights national security concerns, but Ancora stresses that the prevailing leadership of U.S. Steel, including CEO David Burritt, is overly focused on this sale for personal financial gains expected to exceed $100 million if completed.
Setting the stage for a corporate overhaul, Ancora has nominated nine independent directors for election at the annual U.S. Steel shareholders meeting. Among their plans is the appointment of Alan Kestenbaum, noted for his leadership role at Stelco, as the new CEO of U.S. Steel. This significant step is aimed at realigning the company’s focus away from seeking external acquirers and towards internal revitalization efforts.
The asset manager is calling for substantial changes in strategy, emphasizing reducing capital spending and debt while addressing soft earnings. Ancora has also underscored the urgency of a breakup fee amounting to $565 million, all of which could significantly impact the company’s financial landscape.
In an open letter, Ancora did not mince words, stating, U.S. Steel is now in a dire state due to its excessive capital spending, high debt, soft earnings, and non-existent contingency plan. The letter further highlighted concerns about leadership that appears disconnected from local communities and the immediate need for a comprehensive restructuring.
Contrastingly, U.S. Steel reaffirmed its commitment to the Nippon deal, advocating that it serves the best interest of the steel industry in the U.S., strengthening supply chains and benefiting the job market. Defending its stance, the company expressed skepticism towards Ancora’s agenda, suggesting that these maneuvers might not serve the broader interests of all stakeholders involved.
Adding to the complexity of this corporate saga, Cleveland-Cliffs, another American steel producer, looms in the background. Earlier in 2023, U.S. Steel had dismissed a merger proposal from Cleveland-Cliffs, favoring Nippon’s offer instead. Despite this rejection, Cleveland-Cliffs’ CEO, Lourenco Goncalves, has recently expressed interest in revisiting a bid, further stirring the pot in this already tumultuous negotiation.
Ancora, headquartered in Cleveland, pushes forward with its campaign, underlining the need for innovation and development that will bolster U.S. Steel's market position without succumbing to overseas acquisitions. The coming weeks are expected to be pivotal as stakeholders weigh in on the direction in which this iconic American steelmaker will pivot.
This unfolding situation is pivotal not just for industry insiders but also for investors who keep a keen eye on the economic implications of such significant corporate realignments. Will Ancora's strategic realignment lead to a renaissance for U.S. Steel, or will the Nippon acquisition prove too lucrative an opportunity to pass up? Only time will tell as these interests battle for the future of U.S. Steel.
