The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jonathan Guilford

NEW YORK, Jan 27 (Reuters Breakingviews) - The long United States Steel X.N saga has suddenly become a matter of urgency. Boss David Burritt is fighting to salvage a $15 billion sale to Nippon Steel 5401.T. Rival bidder Cleveland-Cliffs CLF.N wants another shot at a takeover. And days ahead of a deadline, a hedge fund has maneuvered to oust the CEO and replace most of the board. The company’s stubbornly resilient stock makes time of the essence.

Burritt is in a tough spot. His decision to invest heavily to move from union-staffed blast furnaces to less labor-intensive electric arc furnaces tanked the bottom line. It also emboldened Lourenco Goncalves, the pugilistic Cleveland-Cliffs boss, to pursue an unsolicited $7 billion takeover bid in August 2023, which then attracted the Japanese buyer.

U.S. Steel’s results have worsened, and President Joe Biden’s administration blocked the Nippon transaction on national security grounds. Ancora is blasting the company for getting itself into this situation, saying it wants to reorient a strategy that has tripled capital expenditures over three years and instead collect a $565 million breakup fee to reinvest in old plants.

A turnaround would be welcome. The outlook for 2025 EBITDA keeps falling, according to estimates gathered by Visible Alpha. And yet its shares have climbed 21% since it sued the government to overturn the Nippon decision. At around $37, they’re short of Nippon’s $55 offer, but well above where they traded before the takeover clash began. Cleveland-Cliffs and bid partner Nucor NUE.N are only preparing to offer in the “high $30s” per share, CNBC reported.

The situation makes it important to get past Nippon soon. Ancora was pressed into action by the Thursday cutoff to nominate directors. Although it says it does not want U.S. Steel to solicit another deal, some facts can be construed differently. The hedge fund’s choice for CEO, Alan Kestenbaum, sold steelmaker Stelco to Cleveland-Cliffs last year. One of its board candidates sold Goncalves another company while another served as a Cleveland-Cliffs director.

There’s also potential upside to be grabbed. If Cleveland-Cliffs offers stock for U.S. Steel, it can share estimated annual synergies worth nearly $4 billion once taxed and capitalized. Ancora also owns just a tiny stake, leaving it scope to lower its cost basis if U.S. Steel’s stock price dips.

Kestenbaum is a proven operator, and links to Cleveland-Cliffs in a consolidating industry are hard to avoid. Moreover, the longer the situation lingers, the less promising U.S. Steel threatens to be. As any blacksmith or steelmaker knows, it’s best to strike while the iron is hot.

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CONTEXT NEWS

Hedge fund Ancora said on Jan. 27 that it has taken a stake in United States Steel, is urging the company to terminate its agreed sale to Japanese rival Nippon Steel, wants to replace CEO David Burritt and has nominated a slate of nine candidates to replace most of the board.

The Biden administration blocked the Nippon deal on national security grounds.

Ancora wants to install Alan Kestenbaum as U.S. Steel’s CEO. Bedrock Industries, the investment firm he chaired, acquired Canadian steelmaker Stelco, formerly a unit of U.S. Steel, in 2016 after it sought protection from creditors. Bedrock took it public a year later, and Cleveland-Cliffs bought it in 2024.

Cleveland-Cliffs offered to buy U.S. Steel in August 2023, and CEO Lourenco Goncalves said on Jan. 13 that a combination of the two companies was inevitable.

(Editing by Jeffrey Goldfarb and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on GUILFORD/ Jonathan.Guilford@thomsonreuters.com))