U.S. Steel a takeover target?

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BY ANDREA HOLECEK
holecek@nwitimes.com
219.933.3316 | Friday, January 13, 2006 | (No comments posted.)

U.S. Steel Corp. could be the takeover target of foreign steelmakers wanting to enter the U.S. automotive steel market, analysts are speculating.

Luxembourg-based Arcelor SA and Germany's ThyssenKrupp AG have been competing to buy Canadian steelmaker Dofasco, a major supplier to the U.S. auto market. Both steelmakers have bid $4.2 billion for the Ontario company, which has until Jan. 25 to determine its fate.

Analysts have been quoted in several recent reports saying Pittsburgh-based U.S. Steel is a prime candidate for acquisition by whichever company is unsuccessful in its Dofasco bid.

"Both want to have more exposure to our automotive industry," steel analyst Charles Bradford said. "Their customers in Europe are building plants in the U.S., and they want that business. U.S. Steel keeps coming up as an alternative if they don't get Dofasco."

Independent steel analyst Michelle Applebaum said the sheer size of U.S. Steel has made it an unlikely takeover target.

"I would have said 'never' a year ago," she said Thursday. "I wouldn't say 'never' today because of the size of Mittal (Steel Co.), and what's gone on with consolidation."

The shift in the iron ore business from being irrelevant to being a key plus for the company, which has its own supply, also makes a takeover bid at least feasible, said Applebaum, of Highland Park-based Applebaum Research.

U.S. Steel isn't for sale, said its spokesman John Armstrong, who said he is aware of the recent articles on the subject.

"We consider it speculation," he said Thursday. "U.S. Steel doesn't comment on speculation."

Yet Bradford, of New York-based Bradford Research, said it makes sense for the Dofasco suitors to look at U.S. Steel.

It makes the high-quality automotive steel that foreign steelmakers want to add to their sales portfolios. So does Mittal Steel USA and AK Steel Corp., but Bradford doesn't believe either is a target.

Mittal Steel USA, the U.S. subsidiary the world's largest steel company, Mittal Steel Co., is controlled and almost solely owned by the Lakshmi Mittal family, who aren't likely to accept a takeover bid.

And unlike U.S. Steel, AK Steel Corp. has a contract with the United Steelworkers that calls for defined pension benefits and retiree health coverage.

"U.S. Steel has its legacy costs under control," Bradford said.

The acquiring company could buy U.S. Steel and then sell off its European business units as well as its pipe business, he said. That strategy would allow it to concentrate on the company's flat-rolled, value-added products while recouping a large percentage of the purchase price.

"It could be friendly (takeover) if they offer enough money," Bradford said. "(U.S. Steel Chairman John) Surma said he's going to look after the shareholders. The stock's selling at around $50. If they offered $65 that would be almost a 15 percent premium."

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