By Greg Roumeliotis and Emma-Victoria Farr
(Reuters) -ArcelorMittal SA, the world's second-largest steelmaker, is considering a potential offer for U.S. Steel Corp, three people familiar with the matter said on Wednesday.
The combination would reverse ArcelorMittal (NYSE:MT)'s retreat from the United States as a production base after it sold most of its operations to Cleveland-Cliffs (NYSE:CLF) Inc in 2020 for $1.4 billion to focus on growing markets such as India and Brazil.
ArcelorMittal is discussing a possible offer with its investment bankers, and there is no certainty that it will press ahead with it, the sources said.
If it does launch a bid, it could mark the escalation of a bidding war that is already underway for U.S. Steel, following rival offers from Cleveland-Cliffs and Esmark Inc for more than $7 billion.
The sources requested anonymity because the deliberations are confidential. Representatives for ArcelorMittal and U.S. Steel did not respond to requests for comment.
U.S. Steel workers are members of the United Steel Workers (USW) union, which has come out in support of a deal with Cleveland-Cliffs even though U.S. Steel has rebuffed that offer as "unreasonable."
The union's endorsement is important because its collective bargaining agreement with U.S. Steel makes it a party in the negotiations and affords it the right to counter with its demands.
USW International President Tom Conway told Reuters ArcelorMittal would be "foolish" to move ahead with a bid and that the union would not endorse any buyers other than Cleveland-Cliffs. He said he was not happy with how ArcelorMittal has treated workers in the past, without elaborating.
"I have no interest in talking to anybody else and I would like U.S. Steel to get their board moving and conclude this thing with Cliffs," Conway said.
U.S. Steel shares rose as much as 6.3% on news of ArcelorMittal's bid deliberations before pairing some of the gains on the union's opposition, to end trading up 1.4% at $30.65. That compares to bids from Cleveland-Cliffs and Esmark that were both worth $35 per share when submitted. Esmark's offer is all cash, while Cleveland-Cliffs would pay for the deal half with cash and half with its own stock.
ArcelorMittal's deliberations come after U.S. Steel said on Sunday it had launched a process to explore interest from potential acquirers.
U.S. Steel became an acquisition target following several quarters of falling revenue and declining profits, as it struggled with high raw material and energy costs.
ArcelorMittal, like its peers, has also been grappling with a slowdown in demand, as global economic growth slows. Last month it reported a second-quarter profit of $2.6 billion, half that of a year ago.
ArcelorMittal's U.S. footprint it currently limited to a joint venture with Nippon Steel Corp in Alabama. They own a plant that produces steel sheet products by processing semi-finished products, or slabs, procured from local and overseas suppliers. They are also investing about $1 billion in an electric arc furnace.
Morgan Stanley (NYSE:MS) analysts said in a note on Wednesday they found ArcelorMittal's U.S. Steel bid deliberations at odds with its strategy of reducing its carbon footprint and focusing on growth in India and Brazil.
"We also see limited scope for cost synergies from such a deal," the analysts added.