Nippon Steel agreed to purchase US Steel for $14.9bn, its largest acquisition ever. The Japanese group is targeting the American market through this deal.
The fourth-largest steelmaker in the world by production announced on Monday it would offer $55 per share for Pittsburgh-based US Steel. US Steel shares surged 26.1% to close at 49.59 dollars.
The offer represents a 40% premium over US Steel’s Friday closing share price, but it is still more than 140% above the price at which its stock traded before rival Cleveland-Cliffs made an $7.3bn bid for the company back in August.
US Steel rejected Cleveland’s offer in that same month, and stated it would consider its options. According to those familiar with the transaction, both domestic and foreign steelmakers showed interest in the process. Nippon Steel’s winning bid, which values US Steel’s equity at $14bn, continues a Japanese tradition of paying generously for overseas acquisitions. US Steel’s value, including debt, is $14.9bn.
Since its formation in 1901, the company has employed almost 23,000 people and been a symbol for US manufacturing. John Pierpont Morgan, a financier, bought Andrew Carnegie’s Steel Group and combined it together with rivals to create what was at the time the largest company in history.
A fund manager with Nippon Steel stock said that the deal appeared to be “terrible” on the surface for investors. He argued it was yet another example of Japanese firms failing to act in the best interests of their investors.
Eiji Hashimoto said, however, that the transaction brought together two companies of world-leading technology and manufacturing.
United Steelworkers, a union that represents US Steel and Nippon Steel, was furious at the deal. It claimed neither company had consulted them. US Steel chose to ignore the concerns of their dedicated workforce in order to sell to a company owned by a foreign country, said USW President David McCall.
The union stated that it would “strongly encourage” regulators scrutinise Nippon Steel’s deal to determine if it served US national interests and benefitted workers.
Nippon Steel has pledged to honor US Steel’s collective agreements as well as other employee commitments. David Burritt was the chief executive of US Steel and he wrote to its employees in August to let them know that their labour agreement didn’t give the United Steelworkers a right to stop a deal the board approved.
US Steel stated that when it declined Cleveland’s proposal, it received many unsolicited expressions interest. Nippon Steel, according to a person familiar with the transaction, was approached later. According to the person, it was a quick decision to make a bid of this size.
This person stated that “the bet had to have been on the US market.” They cited the Inflation Reduction Act of President Joe Biden and the political barriers to expanding into China or Russia.
This acquisition is part of a trend, say bankers, where Japanese companies are increasingly looking to acquire overseas businesses as a way to respond both their shrinking domestic markets and the geopolitical restrictions that Chinese groups face when buying US corporations.
Bankers who advised on several deals in this year have said that the weaker Japanese yen has not deterred chief executive officers from seeking deals to increase market share primarily in the US.
The US Competition Authorities will have to approve the transaction. The transaction comes after the steel industry in the US has been consolidated. Cleveland-Cliffs is now the only major player, followed by Steel Dynamics, Nucor and US Steel.
John Fetterman is a Democratic Senator from Pennsylvania who said on social media he was going to try and block the deal. He said it was “absolutely absurd” that the company was selling to an overseas company because “steel has always been about security”.
Josh Spoores, principal analyst for steel at CRU commodities consultancy, said Nippon Steel was offering “a high valuation”. . . [it] isn’t unreasonable”. He said that the valuation “properly” values US Steel’s $2bn earnings expected in 2024, as well as the incremental earnings promised by US Steel for strategic investments to be delivered by 2026.
Spoores stated that critics may have concerns about national security, but “unless Nippon Steel moves assets out of the US I do not see any problems with this”. He noted that the company already had a large presence in the US.
Citigroup advised Nippon Steel, while US Steel received advice from Goldman Sachs & Barclays.