United States Steel Corp. (X - Get Report) said Tuesday it had reached an agreement to buy a minority stake in Big River Steel, with an option to take complete control over the next four years, in a deal that could ultimately be valued at more than $2 billion.
US Steel will pay $700 million in cash for at 49.9% stake in Big River, the company said, and hold an option to buy the remaining 50.1% stake by 2023 as the industry looks to consolidate amid a slowdown in global demand and the impact of import tariffs on non-US steel put in place last year by President Donald Trump. Including debts, as well as the expected expansion of Big River's flat-rolled mill in northern Arkansas, the deal could be valued at $2.35 billion, U.S. Steel said.
Our new partnership with Big River is designed to accelerate our strategy to offer our customers the 'best of both' by bringing together the capabilities of integrated and mini mill steel production," said CEO David Burritt. "Big River operates the most advanced, state-of-the-art and sustainable mill in North America, and our investment would ultimately strengthen our competitive positioning in highly strategic steel-end markets, creating an unmatched value proposition for our stakeholders."
US Steel shares were marked 5.7% higher at the start of trading Tuesday, reversing earlier pre-market declines, to change hands at $12.20 each, a move that would leave the stock with a 35% year-to-date decline.
Shares in the group, the country's biggest steelmaker, have fallen more than 75% since President Trump first imposed a 25% tariff on imported steel in March of last year.
Last month, Pittsburgh, Pa.-based group said it would likely post an adjusted third quarter loss of 35 cents per share and continue idling two of its main U.S. blast furnaces owing to "the impact of falling steel prices through the second quarter, combined with the impact of a larger than expected drop in scrap prices." J.P. Morgan analyst Michael Gambardella also lowered his price target on U.S. Steel by $12 to $14 per share, and cut his rating to 'neutral' from 'overweight' on the stock.
"It's the third steel company to provide a disappointing earnings view in just the last few days, with Nucor (NUE - Get Report) and Steel Dynamics (STLD - Get Report) giving you numbers well short of the Street's projections," TheStreet's founder, Jim Cramer, said last week following U.S. Steel's revised outlook.
"U.S. Steel forecasts that things are only getting worse as a host of end markets weaken both here and in Europe and remember that's despite tariffs meant to boost its bottom line and cause more hiring, not idling."