Who is Lourenco Goncalves? U.S. Steel/Cleveland-Cliffs bid

Now you can add another big name to U.S. Steel’s long history, if only for a week or two: Lourenco Goncalves, CEO of the Ohio-based company that The company ranks No. 170 on the Fortune 500.

The chatty Brazilian is chief executive of Cleveland-Cliffs, a company he started out of money-losing metals companies. heavily in debt Enough to bid $7.2 billion for a historic national title. The former engineer is known for his harsh criticism of analysts and short sellers and for making risky and high-profile acquisitions, but is also known for revitalizing a long-dormant industrial company while establishing the reputation of a particularly union-friendly executive. reputation. But the deal would significantly boost his profile — even if his name isn’t etched in history alongside the Carnegies and Morgans of finance.

Take a closer look at the man behind the bid and you’ll see he’s willing to do and say anything to push his business to the top.

His tenure as CEO of Cleveland-Cliffs has been a journey from red to black. When he took over the 176-year-old scrap metal company in 2014, it ended the year with a loss of $8.3 billion on $4.6 billion in revenue. By the end of last year, revenue had quadrupled to $23 billion, with profits of $1.4 billion.

Cleveland-Cliffs, which first made an offer to buy U.S. Steel in July, is now understood to value U.S. Steel shares at $35, a 43% premium to Friday’s closing price of $22.72. The market strongly endorsed it on Monday, with shares rising nearly 37 percent to $31.08. Gonsalves said his proposal was rejected as “unreasonable,” but he is confident of completing it and creating the Cleveland-Cliffs Co. estimated The only U.S. steel company among the top ten in the world. For its part, U.S. Steel has hired a group of consultants and conducted a review of strategic alternatives, while disclosing that it has received multiple unsolicited offers for all or part of the company’s business, including from Goncalves quote.

Goncalves, a veteran of the steel industries in his native Brazil and the United States, has been on an acquisition spree in recent years. Under his leadership, Cleveland Cliffs made two major acquisitions in the year of the outbreak: in March 2020, it acquired AK Steel, then the largest producer of iron ore pellets in North America, for US$1.1 billion; Acquired the US assets of Luxembourg-based manufacturing giant ArcelorMittal for US$1.4 billion last month. Gonsalves referred to both deals in his comments, citing Cleveland-Cliffs’ experience in “capturing meaningful synergies from previous acquisitions.” The acquisition of U.S. Steel is expected to create about $500 million in synergies, the company added.

They are all part of a larger effort to vertically integrate Cleveland-Cliffs’ entire manufacturing process. In the 2020 deal, he acquired former client companies to which the company sold the raw materials needed to make steelmaking pig iron. At the same time, U.S. Steel invested heavily in the steelmaking process, which relied heavily on scrap metal, and Cleveland-Cliffs already produced a lot of it. The two companies invest in different but complementary green technologies, which makes the deal even more attractive.

Gonsalves vs. Wall Street History

In addition to being a savvy M&A expert, Gonsalves has a reputation for sometimes publicly berating analysts. Perhaps humorously, he took on Goldman Sachs fundamental materials and industrials analyst Matthew Korn in an article. 2018 Earnings Conference Call. Gonsalves took issue with Cohen’s past assessments of Cleveland-Cliffs and criticized the analyst for not participating in the call. “You can run away, but you can’t hide,” Gonsalves said. He went on to (jokingly?) threaten the analyst, saying he was eager to confront Cohn at a Goldman Sachs meeting “soon,” and suggested that he offer support in the form of his colleagues in the commodities sector.

“It would be easier to interview me if someone from the commodities department was there. It would be worse if you were on your own,” Gonsalves said on a 2018 conference call. It would have been bad anyway, but if It’s even worse if you’re alone. “

In fact, the two appeared together at a conference hosted by Goldman Sachs in November 2019, when they seems to be reconciled.

On the same conference call in 2018, Gonsalves took issue with big bank analysts generally because he believed they couldn’t understand Cleveland-Cliffs’ plan to pay down debt and fund efforts to reduce its climate impact while Still returning capital to shareholders.

“It’s unbelievable that these big banks still hire this type of person,” Gonsalves said. “You ignorant people should resign because it’s not like you don’t understand our business. You don’t understand your own business. You’re a disaster. You’re embarrassing your parents.”

He expressed disdain for short sellers in particular, calling them “kids playing with computers and other people’s money,” and said he would prefer to reward long-term holders of the stock.

“We’re going to screw these guys so badly that I don’t believe they’re going to have to resign; they’re going to have to kill themselves,” he said of the particular short seller he blamed for causing the company’s share price to drop.

Goncalves isn’t done yet. “It’s all about causing maximum pain to these people,” he continued on the same call. “I wake up looking at these people every morning and I go to sleep thinking about these people every night. It’s a terrible place.”

Gonsalves’ personal distaste for short sellers dates back to the early days of his top job at Cleveland-Cliffs.in his First earnings call as CEO In August 2014, he declined to answer questions from Wells Fargo Securities analyst Sam Dubinsky after the analyst lowered his price target on Cleveland-Cliffs stock. “I’m not going to answer your questions because you already know everything about my company,” Goncalves said with open sarcasm.

The shenanigans bring to mind another CEO with an engineering background who tends to make big moves in mergers and acquisitions, even fond of the letter “X.” Back in 2018, Tesla CEO Elon Musk showed similar disappointment with Wall Street types during the Q&A portion of the first-quarter earnings call. On that call, he repeatedly called the questions “boring” and even called them “stupid.” Musk apologized for his “impoliteness” during Tesla’s earnings call in August of that year.Musk also has a long history Frustration for Short SellersA trial earlier this year called the practice a way for “bad guys on Wall Street to steal money from small investors.”

Cleveland-Cliffs did not respond wealth’Request for comment.

A Labor-Friendly CEO

Goncalves is an engineer by training, graduating from the Military Engineering Academy in Rio de Janeiro and then earning a master’s degree in metallurgical engineering at the Federal University of Minas Gerais in Belo Horizonte.

Over the years, Gonçalves has steadily risen in the steelmaking industry in Brazil, the United States and Europe, and he is a former board member of French steelmaker Asco Metals. Prior to his current position, he served as CEO, President and Chairman of Metals USA. Before that, he headed another American industrial giant, California Steel Industries.

In October 2022, he leads Cleveland-Cliffs through one of the most high-profile tightrope walks a manufacturing CEO can face: negotiating a new union contract. His labor agreement with the United Steelworkers union guarantees workers a 20 percent increase in base wages and includes the company’s commitment to invest $4 billion in new facilities.

Gonsalves has proven himself to be a particularly union-friendly executive, rarely exhibiting the overt hostility other executive types are known for when it comes to organized labor.in a interview and wealth When CEO Alan Murray took over in May 2022, Gonsalves showed a desire to break the stereotype of the disconnected, even callous, executive. “Every CEO you talk to will tell you they work for shareholders,” he said. “I don’t. I work for my people.”

That may have something to do with his campaign to win U.S. Steel, which has a clause in its contract with the United Steelworkers giving the union a decisive vote in any takeover bid, which the union says will only be exercised. one vote Support for Cleveland-Cliffs offer. The union’s decision leaves U.S. Steel with little room to maneuver. If it wants to avoid a takeover by Cleveland-Cliffs, U.S. Steel may have to find another buyer with an offer high enough to renege on Labor’s word, or convince shareholders that the 43% premium on their current shares isn’t justified. It’s not a deal worth taking, so they would vote against any merger.

In the interview, Gonsalves demonstrated the long-term thinking of the M&A boom so far that has become a hallmark of his Cleveland-Cliffs strategy. CNBC on Monday. He believes that without a merger, Cleveland-Cliffs, and what he considers an American company, will not be able to compete with the world’s largest manufacturers, especially those from China. “I’m using a script,” he said.

The interview ended up perfectly summarizing Gonsalves, executives and individuals. He made a nuanced business case for a merger that would greatly improve performance for Cleveland-Cliffs shareholders and employees; anyone, and call her Lourdes at the end.

Judging by Lorenzo Goncalves’ ambitions for Cleveland-Cliffs and U.S. Steel, he’s acting as if he wants the business books to remember his name.