United States Steel Corporation (X) (“U. S. Steel”) announced today
a joint venture partnership agreement under which it has taken the
first step towards acquiring Big River Steel (“Big River”) through
the purchase of a 49.9% ownership interest at a purchase price of
approximately $700 million in cash, with a call option to acquire
the remaining 50.1% within the next four years. U. S. Steel has
committed financing to execute the transaction. The implied
enterprise value of Big River, including the expected completion of
its Phase II-A expansion, which is fully funded and already under
construction, is approximately $2.325 billion.
Big River operates a LEED-certified, Flex
Mill™ in northeast Arkansas that is the newest and most
advanced flat-rolled mill in North America. Big River’s
technological leadership allows it to produce a wide product
spectrum, including advanced automotive steels and electrical
steels, and provide high-quality products and services to
discerning customers in the automotive, energy, construction and
agricultural industries. Big River’s recently announced Phase II-A
expansion is expected to double the mill’s hot-rolled steel
production capacity to 3.3 million tons annually, establishing it
as one of the largest EAF-based flat-rolled mills in North
America.
“Our new partnership with Big River is designed
to accelerate our strategy to offer our customers the ‘best of
both’ by bringing together the capabilities of integrated and mini
mill steel production,” said David B. Burritt, President and Chief
Executive Officer of U. S. Steel. “Big River operates the
most advanced, state-of-the-art and sustainable mill in North
America, and our investment would ultimately strengthen our
competitive positioning in highly strategic steel-end markets,
creating an unmatched value proposition for our stakeholders.”
Burritt continued, “We have been investing in
leading technology and advanced manufacturing so that we can
assemble a portfolio of competitive assets with distinct advantages
to serve strategic markets to better position U. S. Steel to be an
industry leader in delivering high-quality, value-added products.
The investment in Big River, coupled with our announced investments
at Mon Valley Works and Gary Works, would ultimately position U. S.
Steel with three core market-leading, differentiated and
technologically advanced assets that will enable us to compete with
anyone, anywhere, for generations to come. Each of these locations
would be able to focus on the products that each facility is best
designed to produce. As an organization, we will be nimbler, more
resilient and our teams will be more efficient. Collectively, these
actions will help us continue to create long-term value for our
stockholders, customers, employees and the communities in which we
live and work.”
This transaction minimizes the risk of
operational and financial execution while maximizing the potential
for value creation. This transaction provides numerous strategic
and financial benefits to U. S. Steel, some of which will begin to
be implemented immediately upon the closing of this transaction,
while others would become fully realized upon full ownership of Big
River.
- Strengthens U. S. Steel’s
competitive positioning and establishes an unparalleled product
platform in strategic, high-margin end-markets, including energy,
infrastructure and automotive.
- Reshapes U. S. Steel’s footprint in
the flat-rolled segment to create a more nimble, agile and
customer-focused organization with new presence to serve growing
U.S. and Mexico markets.
- Complements U. S. Steel’s existing
capabilities, as well as U. S. Steel’s previously announced
strategic investments in advanced high-strength steel (AHSS) in
Ohio, electrical steel line in Slovakia, Electric Arc Furnace in
Alabama, and best of breed Endless Casting and Rolling Technology
in Pennsylvania.
- Increases profitability,
predictability and cash flow generation through the business cycle
due to Big River’s low-cost position, highly variable cost
structure and low sustaining capex requirements.
- Positions U. S. Steel to achieve as
much as $1 billion in capital and operational cash improvements by
2022 through activities such as rescoping asset revitalization
investments, reducing fixed costs and enhancing its ability to
pursue opportunities to extract incremental value from excess iron
ore pellets.
- Enhances U. S. Steel’s talent
through the addition of Big River’s experienced team with an
entrepreneurial culture rooted in technology and leverages over a
century of making steel by U. S. Steel, including deep
Research & Development resources and understanding of customers
in key strategic markets that continue to grow profitably.
“U. S. Steel’s decision to partner with us
through this investment in Big River is a decisive vote of
confidence in our company, our vision and our people,” said Dave
Stickler, Chief Executive Officer of Big River. “After just over
two years of operations, we have built a unique platform that
features the most advanced technology in our industry, and the very
finest steel technicians in the business. We have always called
ourselves a ‘technology company that just happens to make steel.’
In U. S. Steel, we have a likeminded technology-focused partner
with an enduring tradition of excellence and a commitment to
innovation. We are very excited about the possibility for what we
can do together. As the newest steel production facility in North
America, I could not be more proud to be partnering with a company
started by Andrew Carnegie more than 118 years ago.”
Dan Murray, of KM BRS, LLC (a subsidiary of Koch
Minerals, LLC), and current Chairman of Big River said, “We
appreciate the opportunity to be a part of this exciting
transaction that combines Big River’s state-of-the art,
LEED-certified steel-making technology and U. S. Steel’s experience
and demonstrated know-how.” Upon the completion of the
transaction, KM BRS, LLC and TPG Furnace, L.P. (an affiliate of TPG
Growth) would remain preferred equity holders of Big
River.
Terms of the Transaction and Path to
Full OwnershipUnder the terms of the transaction, the
companies will form a joint venture where U. S. Steel would
purchase a 49.9% minority ownership interest with an option to
acquire the remaining 50.1%. The transaction includes a call
option that gives U. S. Steel the right to acquire the remaining
equity of Big River within four years at an agreed-upon price
formula based on Big River’s achievement of certain metrics,
including with respect to free cash flow, product development,
safety and completion of a proposed expansion of the company’s
existing manufacturing line.
U. S. Steel has committed financing to execute
the transaction. U. S. Steel intends to increase its existing
$1.5 billion asset-backed lending facility to $2 billion and draw
on the upsized asset-backed lending facility to fund the
transaction. The upsized asset-backed lending facility has
been fully committed by Barclays Capital.
Timing and
ApprovalsClosing of the transaction is anticipated
on October 31, 2019, subject to satisfaction of customary closing
conditions.
AdvisorsBarclays Capital is
serving as financial advisor to U. S. Steel, and Milbank LLP is
providing legal counsel. J.P. Morgan Securities LLC and Goldman
Sachs & Co. LLC are serving as financial advisors to Big
River, and Baker Hostetler is serving as legal counsel. Jones Day
is serving as legal counsel to KM BRS, LLC and Debevoise &
Plimpton LLP is serving as legal counsel to TPG Furnace.
Conference Call InformationU.
S. Steel will conduct a conference call to discuss the details of
this transaction on October 1, 2019 at 8:00 a.m. EDT. To listen to
the webcast of the conference call and to access the company’s
slide presentation please visit the U. S. Steel website,
www.ussteel.com, and click on the “Investors” section. Replays of
the conference call will be available on the website after 10:00
a.m. EDT on October 1, 2019.
WebsiteFor additional
information about today’s announcement and to hear from both CEOs,
please visit https://ussteel.com/Big-River-investment.
FORWARD LOOKING STATEMENTSThis
press release contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Words such as, but not
limited to, "believes," "expects," "anticipates," "estimates,"
"intends," "plans," "could," "may," "will," "should," and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements in this release include, among other
things, statements about the potential benefits of the proposed
investment and transaction; anticipated cost savings; potential
capital and operational cash improvements; U. S. Steel’s plans,
objectives, expectations and intentions; the financial condition,
results of operations and business of the proposed joint venture;
the joint venture’s products and potential; U. S. Steel’s future
ability or plans to take ownership of the joint venture as wholly
owned subsidiary; U. S. Steel’s ability to obtain financing for the
transaction or other strategic projects at anticipated interest
rates or at all; and the anticipated timing of closing of the
transaction. Risks and uncertainties include, among other things,
risks related to the satisfaction of the conditions to closing the
transaction in the anticipated timeframe or at all and the
possibility that the transaction does not close; risks related to
the ability to realize the anticipated benefits of the transaction,
including the possibility that the expected benefits and cost
savings from the proposed transaction or the capital and
operational cash improvements will not be realized or will not be
realized within the expected time period; risks related to the
satisfaction of the conditions to closing a future call option
transaction (including the failure to obtain necessary regulatory
approvals); and the risk that the businesses will not be integrated
successfully following exercise of the call option; disruption from
the transaction making it more difficult to maintain business and
operational relationships; negative effects of the announcement or
the consummation of the proposed transaction on the market price of
U. S. Steel’s common stock; significant transaction costs; unknown
liabilities; the risk of litigation and/or regulatory actions
related to the proposed transaction; other business effects,
including the effects of industry, market, economic, political or
regulatory conditions; future exchange and interest rates; changes
in tax and other laws, regulations, rates and policies; future
business combinations or disposals; and competitive
developments. All forward-looking statements rely on a number
of assumptions, estimates and data concerning future results and
events and are subject to a number of uncertainties and other
factors, that could cause actual results to differ materially from
those reflected in such statements. Accordingly, U. S. Steel
cautions that the forward-looking statements contained herein are
qualified by these and other important factors and uncertainties
that could cause results to differ materially from those reflected
by such statements. For more information on additional potential
risk factors, please review U. S. Steel’s filings with the SEC,
including, but not limited to, U. S. Steel’s Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and its Current Reports on
Form 8-K.
About U. S. SteelUnited States
Steel Corporation, headquartered in Pittsburgh, Pa., is a leading
integrated steel producer and Fortune 250 company with major
operations in the United States and Central Europe. For more
information about U. S. Steel, please visit www.ussteel.com.
CONTACTS:MediaMeghan CoxManagerCorporate CommunicationsT - (412)
433-6777E - mmcox@uss.com |
Investors/AnalystsKevin LewisGeneral ManagerInvestor RelationsT -
(412) 433-6935E - klewis@uss.com |
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