TheChek News Flow

USW is backing Cleveland-Cliffs’ attempt to buy the company, but the steelmaker is considering multiple offers

United States Steel X -0.03%decrease; red down pointing triangle and the United Steelworkers union are at odds over the union’s influence as the steelmaker considers acquisition bids.

The union, which represents about 11,000 hourly production workers at U.S. Steel, is backing rival steelmaker Cleveland-Cliffs CLF -1.27%decrease; red down pointing triangle’ attempt to buy the company. U.S. Steel is pushing back, saying its contract with USW doesn’t give the union a veto vote over any potential deal for the 122-year-old company.

Pittsburgh-based U.S. Steel said on Aug. 13 that the company is considering multiple offers for all or part of its business. Alongside Cleveland-Cliffs, industrial conglomerate Esmark has also announced a bid for U.S. Steel, which is one of the four big steelmakers that supply the auto industry, the construction sector and other manufacturers.

U.S. Steel for decades has been one of the nation’s largest steelmakers, operating mills and iron-ore mines. While newer competitors can produce steel more cheaply by melting scrap in electric arc furnaces, U.S. Steel’s iron-ore based production methods remain vital for steel used in auto bodies, food cans, appliances and other manufacturing.

The company’s iron-ore reserves have increasing strategic value in the industry as scrap steel supplies tighten. U.S. Steel also produces pipe for oil and gas wells, and plans to start producing specialized steel for electric-vehicle motors.

A sale of U.S. Steel could put the USW in a precarious position. U.S. Steel and Cleveland-Cliffs are the largest unionized steelmakers in the U.S. Newer steel companies, including Nucor and Steel Dynamics, operate without union-represented workers. U.S. Steel’s newest steel mill, Big River Steel in Arkansas, also has a nonunion workforce.

U.S. Steel executives plan to expand Big River’s capacity, potentially diminishing the company’s need to continue operating some older mills that rely on unionized workers. U.S. Steel since 2020 shut down most of its unionized mill near Detroit and is attempting to sell its union-staffed steel mill near St. Louis.

The union said its contract with U.S. Steel affords it “de facto veto power” over the sale of the company, because a buyer would have to negotiate a new contract with the USW before a sale is concluded.

“The potential sale of the whole company or USW-represented assets could not be consummated without the support of the USW,” the union said on Friday.

U.S. Steel said in a letter to employees Tuesday that the contract “does not grant the USW, or any party it assigns its right to, the right to prevent a potential transaction—with any party—that our board decides is in the best interest of stockholders.”

The company said the union cannot block a sale if a buyer agrees to abide by the terms of the existing contract, which is less than a year old. Any potential acquirer would need to assume the existing contract with the union, U.S. Steel said, and recognize the steelworkers union as the representative of the company’s hourly employees.

The union’s leverage over the sale process would come into play if a buyer wanted to reduce pay or other benefits as a condition for purchasing all or parts of the company, U.S. Steel said. The union could refuse to modify the contract, effectively stalling a sale.

A letter from USW President Thomas Conway to U.S. Steel dated Aug. 3 said the union “unequivocally” endorsed Cleveland-Cliffs’ plan to acquire U.S. Steel, and that the union “will not endorse anyone other than Cliffs.” Cleveland-Cliffs released the letter on Aug. 13 when it disclosed that it had submitted an unsolicited cash-and-stock offer in late July worth about $35 a share.

“Cliffs is the only realistic buyer able to acquire the totality of the U.S. Steel,” the union said.

The union said its support for Cleveland-Cliffs is based on the company’s actions since 2020, when it bought unionized mills operated by AK Steel and ArcelorMittal. The union said Cleveland-Cliffs expanded the union workforce after the acquisitions.

Cleveland-Cliffs also quickly wrapped up negotiations with United Steelworkers last year on a new contract for about 14,000 workers that included raises of 20% over four years.

U.S. Steel eventually agreed to the same wage increase. Cleveland-Cliffs has already agreed to honor the current contract between the USW and U.S. Steel if it acquires the company, the union said.

Conway said Cleveland-Cliffs’ acquisition of U.S. Steel would keep the company from being bought by a foreign-owned company.

“The USW isn’t interested in seeing these important assets falling into foreign steelmakers’ hands, and we advised both U.S. Steel and Cliffs of that position,” Conway said on Monday.

U.S. Steel said the union has the right under its contract to submit an offer to acquire the company. The union said it transferred that right to Cleveland-Cliffs, attaching the union to Cleveland Cliffs’ efforts to purchase U.S. Steel.

U.S. Steel said its board voted down Cleveland-Cliffs’ cash-and-stock proposal, calling it unreasonable after Cleveland-Cliffs refused to sign a nondisclosure agreement covering information about U.S. Steel disclosed during formal negotiations. U.S. Steel said Cleveland-Cliffs wouldn’t sign a nondisclosure agreement unless U.S. Steel accepted the economic terms of its offer.

Industry analysts have said combining U.S. Steel and Cleveland-Cliffs would likely create market concentrations that would attract opposition from government regulators and customers of the two companies. If the companies merged, Cleveland-Cliffs would control an outsize share of the markets for automotive sheet steel, iron ore and specialized metal electric-vehicle motors.

Dick’s Sporting Goods, Macy’s Flash Warning Signs on U.S. Consumer Spending

Rising levels of theft, student-loan repayments and credit-card delinquencies cloud earnings picture for retailers

Dick’s Sporting Goods DKS -23.44%decrease; red down pointing triangle and Macy’s shares traded sharply lower Tuesday after the retailers posted weaker quarterly earnings and provided tepid forecasts for the remainder of the year, signals that the recent strength in consumer spending has its limits.

The sporting-goods chain slashed its profit targets for the year after missing Wall Street forecasts for the second quarter. Sales slowed after a pandemic-fueled surge for outdoor gear, leaving it with excess inventory. Executives said thefts of merchandise were also higher than they expected.

Macy’s M -13.85%decrease; red down pointing triangle reported declining sales in the June quarter and warned that more shoppers are late on their credit-card payments. Delinquencies are viewed as a proxy for consumer health, and missed payments endanger a key source of revenue for the department-store chain.

“We expect the pressures consumers are under to continue through the balance of the year,” said Macy’s Chief Executive Jeff Gennette, adding that additional challenges will come once students and graduates resume repaying their federal student loans. He added that international tourism has yet to return to prepandemic levels.

“Consumers still have good savings, but they are being more judicious in how they spend,” Gennette said. “More of their money is going to services and experiences.”

Sales at Macy’s were down 8% to $5 billion from a year earlier and the company swung to a net loss in the recently completed period. Apparel categories including activewear, casual and sleepwear had challenges, while others such as fragrances and prestige cosmetics as well as women’s career sportswear performed well, according to Macy’s.

Shares of Dick’s plunged about 24%, putting it on track for its largest single-day percentage decline as a public company. Macy’s fell 13% in Tuesday trading. Home-improvement chain Lowe’s rose Tuesday after the company reported results that matched expectations.

The readouts from Dick’s and Macy’s illustrate the economic challenges that persist among sellers of consumer goods. Spending on items such as apparel, electronics and sporting goods surged early in the pandemic but slowed significantly starting last year, causing whiplash among retailers that bet on buying patterns continuing at higher levels.

Consumers are still spending, but being choosy as inflation weighs on their budget. They are buying food and other necessities but for months have also been cutting back on some discretionary items. They have also directed more money toward services.

That environment favors retailers touting deals, necessities or speedy delivery. Earlier this month Walmart, the country’s largest grocery seller, and e-commerce retailer Amazon reported strong earnings and sales. TJX, which owns chains such as T.J. Maxx and HomeGoods and is known for discounts, also posted strong sales and profit.

Gennette said Macy’s Backstage—its answer to T.J. Maxx and other off-price chains—is performing well but isn’t large enough to make up for shortfalls elsewhere in the business.

Rising theft from organized crime is also weighing on Macy’s. Gennette said that the retailer is moving high-theft items away from store entrances and taking other measures but that the loss of goods from theft, misplacement or other mistakes will be at record levels for the second year in a row.

Some other retailers, from Target to Home Depot, have cited increased theft as a problem for their businesses. Some retail executives have recently cited both shoplifting and organized crime rings as reasons for diminished profits. At Nike, thefts in stores and throughout its distribution network have hurt its business.

For Dick’s, sales of team sports products and footwear rose from the prior year, while demand for apparel softened, said Chief Executive Lauren Hobart on a call with analysts. Executives said they remain cautious about the health of consumers this year, but right now shoppers at all income levels are spending.

Overall sales were up 3.6% at $3.22 billion, just below analyst forecasts for $3.24 billion. Comparable-store sales were up 1.8% on a higher number of transactions, but fell short of analyst projections.

“Our consumer is doing very well,” and consider spending on sports, and outdoor exercise as more of a necessity than in the past, said Hobart.

Shrink, the industry team for inventory lost through theft or other reasons, ate into profit margins, said executives, as did discounting to unload some excess inventory, primarily outdoor gear such as kayaks and bikes.

In the latest period, earnings at Dick’s fell 23% to $244 million. On a per-share basis, earnings missed analyst forecasts by nearly a dollar.

Dick’s now expects earnings of $11.33 to $12.13 a share this year, down from a prior outlook for $12.90 to $13.80 a share.

Earlier this week Dick’s cut hundreds of corporate jobs. The company will reinvest those savings elsewhere, executives said Tuesday. It plans to record $20 million of severance costs in the current quarter, and could have up to $50 million in additional expenses from business restructuring efforts this fiscal year.

Share of UK companies facing debt stress will rise to 50% by the year-end, says analysis

British companies face a higher risk of corporate defaults, posing a threat to investment and employment, as a result of rising interest rates, the Bank of England warned on Tuesday.

The share of non-financial UK companies experiencing debt-servicing stress — those with a low ratio of earnings to interest expenses — will rise to 50 per cent by the end of the year, from 45 per cent in 2022, according to an analysis published on the BoE’s blog.

The proportion rose to 70 per cent for medium-sized companies, those with an annual turnover between £10mn and £500mn. Under this scenario, corporate debt stress would hit its highest level since the 2008-09 financial crisis.

“Higher interest rates are putting pressure on indebted corporates through higher debt servicing costs,” said the analysis. “Such pressure increases the likelihood of defaults on corporates’ debt and may lead some firms to reduce investment and employment sharply.”

The UK interest rate has risen from a record low of 0.1 per cent in November 2021 to its current 5.25 per cent. The BoE analysis used market expectations that the rate will climb to 6.1 per cent.

David Bharier, head of research at the British Chambers of Commerce, said: the BoE’s analysis was consistent with what it had heard from thousands of small and medium-sized companies (SMEs).

“Rising borrowing costs are putting significant pressure on many smaller businesses, who after three years of economic shocks, are unable to absorb the increases,” said Bharier. “Many . . . will be concerned the real pain is yet to come.”

Martin McTague, national chair of the Federation of Small Businesses, said the analysis had mainly focused on bigger firms and “so doesn’t show the whole picture, with small businesses far more exposed to rising interest rates than their medium-sized and large peers”.

One in five small businesses reported financing as a main cause of increased business costs, according to FSB data from the second quarter of 2023, which was the highest proportion to date.

The BoE said that companies with low-interest coverage were more likely to experience difficulties in managing their debt, and warned that defaults could threaten financial stability in the economy by reducing lenders’ resilience.

Sharp reductions in corporate investment and employment — which happens when defaults rise — could indirectly make future economic downturns more severe, it warned.

Ruth Gregory, analyst at Capital Economics, said corporate insolvencies were expected to rise “sharply” in the months ahead as a result of surging borrowing costs, a largely stagnant economy and high inflation.

Separate data from the Insolvency Service, a government agency that deals with bankruptcies and companies in liquidation, last month showed there were 6,342 registered company insolvencies in England and Wales in the three months to June — the highest figure since the second quarter of 2009.

The BoE also forecast that the share of companies in distress will stay below the peaks reached during the financial crisis and the dotcom crash of 2000.

This was because many SMEs, which are typically more dependent on bank lending than larger companies, took out fixed-rate loans at a rate of 2.5 per cent cent over a term of six-10 years during the Covid pandemic, according to Gregory.

Agreement marks truce in bitter dispute that had clouded efforts to move on from sexual harassment claims

German media giant Axel Springer has settled a lawsuit against one of its former top editors, marking a truce in an acrimonious public row that has plagued the Politico owner. 

The publisher, which also owns the business outlet Insider as well as several German newspapers, said that it had “resolved” the case against Julian Reichelt, the former editor of its flagship tabloid Bild who was sacked in 2021 after facing allegations of lying to his employers over sexual relationships with junior female staff.

A statement published by the company said that Reichelt “regrets” having passed information about the company to the owner of a rival media outlet — a reference to an allegation, denied by the journalist, that he shared sensitive internal information about the company despite a written assurance that he no longer held such material.

Axel Springer said that it would withdraw a civil lawsuit that sought to claw back Reichelt’s €2mn in severance pay for breach of contract, and that Reichelt would also drop a counterclaim filed against the company. 

“Axel Springer welcomes the out-of-court settlement as it satisfies the core concerns of the lawsuit and avoids a potentially drawn-out legal dispute,” the statement added.

Axel Springer and a lawyer for Reichelt both declined to give further details on the deal, including whether or not it included any financial compensation. 

But the settlement is likely to come as a relief to executives at the media behemoth — and their shareholders at US private equity firm KKR — after months of negative headlines. These have clouded efforts for a fresh start at Bild, as well as a drive to prioritise a US-focused international expansion and prepare for a public listing of its online jobs platform StepStone.

Reichelt was once one of Axel Springer’s top editors, enjoying a close relationship with chief executive Mathias Döpfner.

He was forced to step aside after facing allegations of sexual misconduct and abuse of power — denied by the former Bild editor — for sleeping with junior staff and interns.

A compliance investigation by the law firm Freshfields found evidence of abuse of power but not sexual harassment. Reichelt was reinstated as editor but was fired seven months later after Axel Springer said that “new findings” had showed he had “failed to maintain a clear boundary between private and professional matters” and had been “untruthful” about this to the company’s executive board.

Axel Springer insiders have long suspected Reichelt of being behind a series of damaging leaks to other media outlets about the company and Döpfner.

Those fears appeared to be confirmed in April this year when executives were approached by Holger Friedrich, the owner of the newspaper Berliner Zeitung, who told them that he had been approached by their former editor with confidential information.

That prompted Axel Springer to take the extraordinary step of taking its former editor to court, filing parallel and civil complaints against him. The initial public hearing, in June, made details of Reichelt’s multimillion severance pay public for the first time.

It is unclear whether public prosecutors will press ahead with a separate criminal investigation into allegations of fraud against Reichelt that were also brought by the company. 

Berlin’s public prosecution office said investigations were continuing and the settlement of the civil case did not “in itself lead to a discontinuation of the preliminary proceedings”.

Puzzle — find the winning move that would have beaten Carlsen

Magnus Carlsen, who has never won the chess World Cup, needs to defeat an 18-year-old Indian in the second game of a two-game mini-match final at Baku on Wednesday (midday BST start, live on chess24.com) to win the match. A 1-1 score will mean speed tie-break games on Thursday. Their first match this afternoon was drawn in 35 moves after level play.

The encounter is a true inter-generation battle at the highest level, as Carlsen, 32, the world No 1, takes on Rameshbabu “Pragg” Praggnanandhaa, 18. As reported here last week, Praggnanandhaa has already knocked out the US world No 3 Hikaru Nakamura, and the Indian star followed up last weekend by eliminating the world No 2 and reigning US champion Fabiano Caruana, by 3.5-2.5 in the semi-final.

The decisive game was a thrilling marathon that was level until around move 30 when the Indian won a pawn by a subtle sequence. Thereafter Praggnanandhaa conceived the grandiose plan of marching his king across the board in the face of harassing queen checks to support his passed pawn. Finally, he queened a second pawn and used his two queens to checkmate the American. To play through the game, press Autoplay in the menu at the bottom of the board.

Praggnanandhaa’s success has already qualified him for the eight-player 2024 Candidates, which will decide the official challenger to China’s world champion, Ding Liren, who succeeded to the crown after Carlsen abdicated earlier this year. He will be the third youngest Candidate ever, after Carlsen and Bobby Fischer.

For his part, Carlsen has already defeated Vincent Keymer, 18, and Dommaraju Gukesh, 17, from the new teenage generation and will relish today’s struggle. However, last weekend’s World Cup semi-final against the lowly ranked Azerbaijani Nijat Abasov, the surprise hometown hero, which Carlsen won 1.5-0.5, had a moment when the underdog could have turned the tables on the No