An interesting rumor has circulated involving ArcelorMittal potentially acquiring US Steel. According to the story, both US Steel’s stock price as well as the number of shares changing hands have increased (the stock by 4.8 percent as of close of business on Wednesday) and the number of shares by a factor of 10 against the four-week moving average. Though the rumor mill may get all excited about a potential deal, we can think of two obvious reasons that a potential merger would be a long shot indeed.
The first argument against a deal came from Michelle Applebaum of Steel Market Intelligence, the Chicago-based steel industry research boutique in the above-referenced BusinessWeek article. “The possibility of an acquisition is unlikelyÂ¦the notion of ArcelorMittal buying U.S. Steel is as ill-founded a rumor I have ever heard, she said in an e-mail. She continued by saying, “There is “no way the United Steelworkers union would allow a deal to proceed, because it relies on U.S. Steel’s support for political and trade issues, which global companies with U.S. operations haven’t demonstrated. We would concur with Applebaum’s comments.
The second argument against a potential merger would likely involve the US Department of Justice Anti-Trust Division and/or the Federal Trade Commission in the form of opposition on anti-trust grounds. ArcelorMittal and US Steel have significant market share within the United States. Let’s review some of the numbers we have previously published. First, EAF steel making (that is steel produced via electric arc furnace making) represents between 55-60 percent of total US steel production. The balance of US domestic production comes from the integrated steel producers. US Steel (integrated or not) had an approximate 26 percent market share last year, according to our own analysis. We also reported that others believe ArcelorMittal is North America’s largest producer by volume. Regardless of exact market shares, we’d find it hard to believe that the Justice Department would approve such a merger. These two producers alone account for a significant percentage of overall domestic steel production.
Then again, we’ve seen stranger things.