Less than two weeks ago, we explained why the announced acquisition of Alpha Natural Resources, America’s largest producer of coking coal by Cleveland-Cliffs, North America’s largest iron ore pellet producer would be a better move for steel buyers than if a steel producer made the same acquisition. But the deal announced by Cleveland-Cliffs may not happen and instead, ArcelorMittal may counter with its own bid, according to this Bloomberg article.
Cleveland-Cliffs’ largest shareholder, hedge fund Harbinger Capital Partners, however, signaled its own opposition to the Cliffs deal. With a 16% ownership stake in the company, it would be difficult for the Cleveland-Cliffs’ Board to generate the necessary 2/3 vote needed to go forward with the takeover. The Harbinger opposition re-opens the door for ArcelorMittal who had made an earlier all-cash bid back in June. According to one analyst, the acquisition would allow ArcelorMittal to plug a hole in regard to securing raw materials.
But buyers should be suspicious of an ArcelorMittal/Alpha type tie-up. As we have previously reported, the costs to produce steel are more than reflected in the sales price. Though it would be difficult to prove from an anti-trust perspective (because this involves raw material and not the steel itself), I can’t help but think we should all be hoping Cleveland-Cliffs is able to pull of this acquisition.