Kestenbaum, Ancora state their case in proxy fight for U.S. Steel

Management critique

They critiqued U.S. Steel’s current CEO, David Burritt, for mismanaging the company and failing to create shareholder value.

In addition to underinvestment, there’s been a “lack of innovation and poor operating efficiencies” at the steel company under Burritt’s leadership, according to Kestenbaum.

He emphasized that the company’s financial projections have been unreliable and unrealistic, with declining revenue and cost overruns plaguing the business.

He also blasted Burritt for his contentious relationship with the United Steelworkers, saying it would be impossible for him to negotiate a new contract next year.

Ancora has sent U.S. Steel a letter formally requesting access to the company’s financial records to investigate potential wrongdoing by board members, including conflicts of interest and potential insider trading by Burritt. The firm suspects he may have had inside knowledge that the stock price would surge and timed a sale accordingly, making $12.6 million in profits.

The investment group is also accusing the board of wasting resources on legal battles for a deal that is effectively “dead” due to bipartisan political opposition and national security concerns. This has raised Ancora’s suspicions about management’s motives, citing the $197 million in “golden parachute” payments the USS board will receive if the merger were to go through.

Ancora has given U.S. Steel until Feb. 26 to provide the requested documents. If the company refuses, it said it could take further legal action.

A plan to Make U.S. Steel Great Again

Ancora’s plan calls for U.S. Steel to abandon its merger with Nippon Steel, collect the $565-million breakup fee, and reinvest in its mills.

Kestenbaum insists that, under his leadership, U.S. Steel can be revitalized as a standalone public company. He pledged to streamline decision-making, reduce corporate overhead, and improve efficiency to restore profitability.

“U.S. Steel has the assets and workforce to compete—it just needs leadership willing to invest in them,” he said, outlining a strategy that includes modernizing blast furnaces and optimizing operations.

A key element of the plan is reinvesting in U.S. Steel’s manufacturing facilities, particularly Mon Valley Works outside Pittsburgh and Gary Works in northwest Indiana. Kestenbaum mentioned investing in smart blast furnaces like he did at Stelco, as well as a new hot strip mill at Mon Valley.

He said U.S. Steel doesn’t need outside investment but can do it independently. “If there is investment needed and capital needs to be raised, we have a lot of experience in raising capital,” he noted. “Nippon is not the only one in the world with money.”

While Burritt’s management had signaled potential closures of these plants, Kestenbaum argues that they could become the most cost-effective steel plants in North America with the right strategy.

The company’s Big River Steel EAF megamill in Arkansas has also drawn scrutiny from Ancora.

Kestenbaum highlighted operational inefficiencies at the facility, citing high yield losses and unrealistic performance projections. He made clear that improving its efficiency would be a priority.

“Big River can be a major asset if run correctly, but right now, it’s not performing at industry standards,” he commented.

U.S. Steel ‘at a crossroads’

Ancora’s proxy battle sets the stage for a heated showdown at U.S. Steel’s annual meeting in the spring. There shareholders will decide whether to support the activist firm’s proposed board slate.

Among Ancora’s other board nominees are Roger K. Newport, CEO of AK Steel until it was sold to Cleveland-Cliffs in 2020, and Robert P. Fisher Jr., who served on the Cliffs board of directors until last year.

An investor inquired about Cleveland-Cliffs’ connection to this proxy fight. “There’s no connection to this with Cleveland-Cliffs, plain and simple,” Kestenbaum stated.

With strong opposition to the Nippon merger from political leaders and uncertainty surrounding the company’s future, Ancora is betting that investors will rally behind its turnaround plan.

The investment firm is prepared to go all the way with this proxy fight. Chadwick noted that running them “is time-consuming and expensive, and we take them very seriously, but this is an asset that’s worth it… . We’re prepared to go all the way.”

“U.S. Steel is at a crossroads,” Kestenbaum said. “Shareholders have a choice: Continue down the same path of mismanagement or put in place leadership that knows how to turn this company around.”

U.S. Steel responds

A spokesperson for U.S. Steel told SMU that “Ancora’s letter is nothing more than a distraction that repeats its previously baseless claims.”

The spokesperson also noted that the slate of candidates chosen by Ancora has “many troubling and conflicting ties to Cleveland-Cliffs” and is not “truly independent.”

“U. S. Steel’s Board of Directors has been and remains unwavering in its commitment to acting in the best interests of all stakeholders, including our stockholders,” the spokesperson said. “We are focused on delivering $55 per share for our stockholders, while also protecting American steel, American jobs, American communities, and American supply chains.”

The company is reviewing the letter and will respond in accordance with the law, the spokesperson said.