Why a labor union has so much influence in the US Steel bidding war, a bidding war for U.S. Steel is intensifying, and one participant wields enormous power: the steelworkers union.
Significant provisions in the union’s contract give it a surprising amount of influence over who purchases the emblematic American company.
Last week, U.S. Steel denied a $7.25 billion cash-and-stock takeover offer from competitor Cleveland-Cliffs, which, like U.S. Steel, has been in business for over a century.
Instead, U.S. Steel initiated a review of “strategic alternatives” — deal jargon for a formal auction procedure — citing the receipt of multiple unsolicited proposals.
Esmark, a privately held company involved in the steel and oil and gas industries, announced that it, too, had submitted an all-cash offer of $7.8 billion. Esmark is a nonunion establishment.
According to reports, ArcelorMittal, the second-largest steelmaker in the world, is also considering a proposal.
The situation: According to its contract with U.S. Steel, the United Steelworkers union has the right to bid on the corporation, which is currently the case. However, instead of offering to purchase U.S. Steel, the partnership transferred its rights to Cleveland-Cliffs, whose employees are also represented by the USW.
In his initial offer letter from July, Cleveland-Cliffs CEO Lourenco Goncalves stated, “We have a perfect relationship with the United Steelworkers, which we believe puts Cliffs in a unique position to facilitate the execution of the Transaction.”
“The USW will not endorse anyone other than Cliffs for such a transaction,” the union representing 11,000 U.S. Steel employees stated in a letter last week.
The mystery: According to Axios’ Dan Primack, the contract does not require U.S. Steel to accept the union’s offer, and it is unclear whether the steelworkers can veto other potential purchasers. The association asserts it has a de facto veto, which U.S. Steel disputes.
The dispute will likely be resolved through arbitration and possibly the courts.
In the interim, the union can potentially hinder U.S. Steel’s negotiating ability.
According to Michelle Applebaum, a veteran steel analyst, the union has favored having two leading unionized steel producers in the past. Their support for consolidation is, therefore, “meaningful.”
Anne Lofaso, a labor law professor at West Virginia University College of Law, described these as “extremely robust contractual rights.” This could result in the union pursuing legal action to momentarily block any deal they oppose.
She stated, “U.S. Steel gave up their right to unilaterally close the deal without consulting the union.” Now they must negotiate with the union and cope with the delay. That will cost “real money,” she stated.