How a Sneaky 10b5-1 Disclosure Forecasted U.S. Steel’s Takeout Valuation 6 Months Before Its Acquisition

See how the SEC's 2023 update to 10b5-1 disclosures offered valuation signals that were unavailable anywhere else.

Ben Silverman, Head of Verity Research
December 20, 2023

The SEC updated disclosure policies related to Rule 10b5-1 plans earlier this year. The increased transparency has quickly paid dividends for VerityData clients.

A recent example is U.S. Steel (X), which announced on December 19, 2023, that it will be acquired by Nippon Steel for $55.00 per share. U.S. Steel had rejected earlier offers by other parties for $35.00 per share. Thanks to new Rule 10b5-1 disclosures, we knew that CEO David Burritt was holding out for a significantly higher price.

What happened? 

RELATED: New Insider Insights at $NFLX, $WW, Others Are Result of Sweeping 10b5-1 Update

CEO Adopts 10b5-1 Plan in June Targeting $49.87

When U.S. Steel filed its 10-Q in late July, the company disclosed that Burritt adopted a Rule 10b5-1 plan on June 6, 2023, to sell up to 252,248 shares from September 8, 2023, until May 31, 2024, “provided that the sale price is at least $49.87 per share.”

That disclosure was a direct result of the SEC rule changes implemented this year. VerityData extracts all that data for our 10b5-1 database and human analysts review those disclosures to identify meaningful future buying and selling behaviors.  

By choosing to disclose this price, Burritt was, in effect, saying, "I'm only willing to sell stock at what looks like an obnoxiously high price (wink, wink)." 

What Stood Out About Burritt’s Disclosure 

Burritt’s disclosure stood out for two reasons.

1. It’s not required and it’s rare for insiders to disclose their minimum sale price threshold or any pricing information related to their Rule 10b5-1 plans. The very disclosure itself is sneaky valuation signaling.

2. U.S. Steel shares were trading at ~$23.00 at the time and had not traded at $49.87 in more than twelve years. By choosing to disclose this price, Burritt was saying, “I’m only willing to sell stock at what looks like an obnoxiously high price (wink, wink).” 

What We Said in July 

“The sales minimum implies Burritt sees tremendous upside for the stock,” we told VerityData clients in late July. 

Two Weeks Later, Low Share Offer Rejected

Two weeks after both that disclosure and our note, Cleveland-Cliffs (CLF) made a $35.00 per share offer, which U.S. Steel rejected. The company then announced it would explore strategic alternatives (privately held Esmark also came in with a $35.00 per share offer). 

What We Said in August

“Burritt’s minimum sale price for his 10b5-1 plan suggests an ambitious valuation view, one that’s more than 40% above the announced acquisition offers. It appears that back in June when he adopted his 10b5-1 plan, Burritt felt that U.S. Steel was tremendously undervalued and/or there was a potential lever to send the stock soaring.” 

Multiple Bids Throughout Fall Lead to December Acquisition Announcement  

 U.S. Steel spent the fall courting takeover bids and dealing with the process of seeking a sale (discussions with unions, Cleveland-Cliffs not giving up, etc.). Before the announcement on December 19, 20023, it was reported that U.S. Steel had fetched multiple bids above $40.00. The stock closed at $39.33 that day, seemingly in recognition that the bid wouldn’t be much more than $40.00. 

Bottom Line

David Burritt was convinced U.S. Steel was worth a lot more than the market and would-be acquirers were valuing the company at.  He signaled that to the world in a regulatory disclosure, but investors had to be paying careful attention to get the signal. At VerityData, we were paying attention.

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Ben Silverman, Head of Verity Research

Ben Silverman has developed research and insights trusted by major institutional investors for 20 years. He is regularly featured in Wall Street Journal, Financial Times, Bloomberg, and other major publications.

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