U.S. Steel Buys Remaining Equity Of Big River Steel

United States Steel Corporation announced December 8 that it has exercised its call option to acquire the remaining equity of Big River Steel for approximately $774 million from cash on hand. Big River Steel’s barge-served facility is located in Osceola, Ark. It just completed Phase 2 of expansion plans, ahead of schedule and under budget, that will double its capacity to 3.3 million tons a year.

In October 2019, Big River Steel had announced it had agreed to receive $700 million in cash from U.S. Steel in return for a 49.9 percent ownership interest, with an option to acquire the remaining 50.1 percent. It’s that option that U.S. Steel is exercising now.

David Burritt, CEO of U.S. Steel, said in an appearance on CNBC that market conditions were right for the company to exercise its option. The company ended November with about $2.9 billion of liquidity, including more than $1.7 billion in cash. The combination of low interest rates, low inflation, a weak dollar and hopes for a comprehensive infrastructure bill that would drive up demand for steel all combined to make this the right time for the deal, Burritt said. The total production capacity of U.S. Steel, including its European holdings, is about 22 million tons a year, he said.

The transaction is expected to accrete to earnings with the potential for “significant synergies to further support long-term value creation,” the company said. The transaction is subject to satisfaction of customary closing conditions, including antitrust approval, and is expected to close in the first quarter of 2021.

Getting To The Future

“For months, I’ve said that we can’t get to the future fast enough,” Burritt said. “Today, I can say the future is now. We are acquiring Big River Steel, the cornerstone of our ‘Best of Both’ strategy. With Big River Steel, we can offer customers the high performance, innovative steel products they expect from U.S. Steel’s scientists and application engineers made through a state-of-the-art, environmentally sustainable and efficient mini-mill process.”

“I’m extremely proud of what our Big River Steel team has achieved in building the most technologically advanced and only LEED-certified steel mill, and I’m equally proud that we are joining a company that not only values our many accomplishments, but shares our vision as well,” said Big River Steel CEO David Stickler. “Being an entrepreneurial disrupter is in our DNA, and I’m excited about the possibilities we have already demonstrated by leveraging U.S. Steel’s industry-leading research and development capabilities. I can’t wait to show the world what the ‘Best of Both’ truly means.”

Big River Steel operates a LEED-certified Flex Mill that is believed to be the newest and most advanced flat-rolled mill in North America. Big River Steel’s advanced manufacturing technology and skilled operators, combined with U.S. Steel’s product development capabilities and intellectual property, have allowed Big River Steel to produce 11 advanced U S. Steel grades, including substrate for its XG3 grade of Generation 3 advanced high-strength steels (AHSS).

Big River Steel offers high-quality products and services to customers in the automotive, energy, construction and agricultural industries. Burritt said, “We are acquiring now to expand the benefits of this powerful partnership. This is aligned with the strong strategic execution and meaningful progress we’ve demonstrated in 2020 toward our goal of $1 billion in capital and operational cash improvements. By completing our top strategic priority, Big River Steel, we expect to strengthen our order book, increase our competitiveness and accelerate further product innovation for our customers. Longer term, the lower, variable cost structure will increase our efficiency, profitability and cash flow across the business cycle.”

Achievements To Date

Key accomplishments of the partnership to date include:

• Big River Steel’s production of substrate for U.S. Steel’s industry-leading XG3TM advanced high strength steel and other automotive grades that will ultimately increase U.S. Steel’s competitiveness in a broader range of automotive applications to better serve strategic customers. This will increase U.S. Steel’s ability to supply automotive manufacturers with the materials they need to not only meet automobile passenger safety requirements but also significantly reduce weight and emissions to meet future vehicle fuel efficiency (CAFE) standards, all made through an ultra-low-carbon emission production process. These same products are also a “greener” solution for customers who are increasingly focused on sustainability within their supply chains.

• U.S. Steel’s assistance to Big River Steel in developing a wider range of steel grades, including grades predominantly made by integrated producers, demonstrating the power of the world competitive “Best of Both” integrated and mini mill steelmaking technology strategy.

• Validating the future role of Big River Steel’s proven sustainable steelmaking technology will play in meeting U.S. Steel’s commitment to reduce greenhouse gas emissions intensity across its global footprint by 20 percent, as measured by the rate of carbon dioxide equivalents emitted per ton of raw steel produced by 2030 based on 2018 baseline levels. Big River Steel will also increase the steel recycling intensity within U. S. Steel’s footprint.

• Sharing best practices during completion of U.S. Steel’s previously announced strategic investment in electric arc furnace steel production to accelerate operational readiness in Alabama.

• “Meaningful progress” on the target of achieving as much as $1 billion in capital and operational cash improvements by rescoping asset revitalization investments, reducing fixed costs and extracting incremental value from excess iron ore.

Transaction Terms

In order to preserve certain tax benefits related to Big River Steel’s Phase 2A expansion, U. S. Steel will defer the closing of the purchase of a de minimis percentage of the equity in Big River Steel for a limited period. Closing of the transaction is anticipated in the first quarter of 2021, subject to satisfaction of customary closing conditions, including antitrust approval.