US Steel earnings, new investments report
United States Steel Corporation reports a third quarter 2019 net loss of $84 million (or $0.49 per diluted share). Adjusted net loss is $35 million or $0.21 per diluted share. This compares to third quarter 2018 net earnings of $291 million, or $1.62 per diluted share. Adjusted net earnings for third quarter 2018 were $321 million, or $1.79 per diluted share.
On the other hand, the company also recently completed the acquisition of a 49.9% ownership interest in Big River Steel (“Big River”) for approximately $700 million, which implies an enterprise value of $2.325 billion.
“Today is a true milestone for our 118-year old company,” said David B. Burritt, president and CEO of U. S. Steel. “The closing of our investment in Big River brings us one step closer to creating a differentiated, world-competitive company that can offer our customers, employees and stockholders the ‘best of both’ integrated and mini mill steel making technology. We have done more than make an investment in the newest and most advanced flat-rolled mill in North America … we have invested in the future of U. S. Steel. We are gratified by the positive response we have received from our stakeholders recognizing the strategic rationale of this transaction since we announced it on October 1. We now look forward to executing the next phase of our strategy with our new partners at Big River.”
As announced on October 1, 2019, the transaction includes a call option that gives U. S. Steel the right to acquire the remaining 50.1 percent of Big River within four years at an agreed-upon price formula. Until that time Big River will operate independently. As previously mentioned, KM BRS, LLC (a subsidiary of Koch Minerals, LLC) and TPG Furnace, L.P. (an affiliate of TPG Growth) remain preferred equity holders of Big River along with the majority common ownership position held by company management and the Arkansas Teachers Retirement System.
U. S. Steel will account for its investment in Big River under the equity method as control and risk of loss are shared among the partnership members. Under the equity method of accounting, U.S. Steel will recognize its share of Big River's after tax net income or loss as well as the amortization of any basis differences due to the step-up to fair value of certain assets and liabilities attributable to Big River. The financial impact of this acquisition will begin to be reflected in U. S. Steel’s fourth quarter 2019 results.