New player arrives in U.S. Steel-Nippon takeover saga with the goal of quashing it

An asset manager based in Cleveland is seeking to quash a Japanese takeover of U.S. Steel and oust its leadership after buying a minor stake in the company.

The activist shareholder, Ancora, recently acquired less than a quarter-percent stake in the company. It said in an open letter Monday the board of U.S. Steel and its CEO, David Burritt, have kept up their pursuit of a sale to Nippon Steel because they stand to receive more than $100 million if it goes through.

That payout may never come. After Biden blocked the proposed $15 billion sale on national security grounds, Nippon and U.S. Steel filed a federal lawsuit challenging the decision, one that legal experts have told TribLive is unlikely to work.

Ancora, instead, wants to ditch the sale, take a $565 million break-up fee from Nippon and focus on running a sustainable, independent business, the firm said.

“U.S. Steel is now in a dire state due its excessive capital spending, high debt, soft earnings and nonexistent contingency plan,” Ancora wrote. “There are consequences associated with having out-of-touch leadership with weak involvement in local communities. Absent a miracle, Ancora believes a substantial and urgent reconstitution of the company’s leadership is necessary.”

To that end, the company has nominated nine independent directors for election at U.S. Steel’s annual shareholders meeting this year, launching what’s known in the business world as a proxy war, or an effort by shareholders to install new corporate leadership.

Those directors have a plan that includes making Alan Kestenbaum, former chairman and CEO of Stelco, the new head of U.S. Steel.

Kestenbaum has made his distaste for Burritt known, including on a recent appearance on a Steel Market Update webinar.

Even so, analysts described Ancora’s move as extremely unexpected and its motivations just as murky.

“It did seem to me kind of odd, because the deal that Nippon is offering is tremendous from a stockholders’ perspective,” said Chester Spatt, a finance professor at Carnegie Mellon University.

Nippon offered $55 a share in cash. The next best offer came from U.S. Steel’s domestic rival Cleveland-Cliffs at $54 in cash and stock.

Spatt continued: “This is like the opposite of what we think of as activism.”

It’s unclear whether the ploy will succeed, he said, but proxy war instigators tend to amass more significant stakes in the companies they seek to influence than Ancora has.

Ancora signaled plans to acquire more shares going forward, describing itself as a “growing shareholder” of U.S. Steel.

After Ancora’s letter went public, U.S. Steel reiterated its commitment to pursuing a deal with Nippon, believing it’s the best deal for the domestic steel industry, supply chains and job market.

Nippon has promised $2.7 billion in upgrades for union-run plants in addition to no plant closures or job losses through 2026.

U.S. Steel also expressed concern over Ancora’s plans.

“Our stockholders will not be well served by turning over control of the company to Ancora, U.S. Steel said. “We are also concerned about the motivations behind these nominations, given Ancora’s and Alan Kestenbaum’s recent dealings with failed bidder Cleveland-Cliffs.”

Kesterbaum last helmed Stelco, a Canadian steel maker that sold to Cleveland-Cliffs for $2.8 billion in November. Cleveland-Cliffs CEO Lourenco Goncalves said this month he wants to make another offer for U.S. Steel, one that could reportedly involve Nucor and be valued at about two-thirds of Nippon’s proposal.

Ancora’s letter, however, specifically vows its slate would not solicit acquisition proposals for Cleveland-Cliffs or any other firm. It also said preserving Mon Valley Works, which employs about 3,000 people in Western Pennsylvania, as a priority.