Japan’s Nippon Steel to buy US Steel in $14.9 billion deal
- 18 Dec 2023
Japan’s Nippon Steel clinched a deal on Monday to buy US Steel for $14.9 billion in cash, prevailing in an auction for the 122-year-old iconic steelmaker over rivals including Cleveland-Cliffs and ArcellorMittal.
The deal price of $55 per share represents a 142% premium to Aug. 11, the last trading day before Cleveland-Cliffs unveiled a $35-per-share cash-and-stock bid for US Steel.
Cleveland-Cliffs’ move prompted US Steel to launch a sale process. In a meeting of its board of directors on Sunday, US Steel deemed Nippon’s offer superior to a sale to Cleveland-Cliffs, which had raised its bid in the high $40-per-share range, the sources said.
The outcome is also a blow for ArcelorMittal, which Reuters has reported also pursued US Steel. Nippon and ArcelorMittal own a plant in Alabama that produces steel sheet products by processing semi-finished products, or slabs, procured from local and overseas suppliers. They are also investing about $1 billion in an electric arc furnace.
The deal will help Nippon, the world’s fourth largest steel maker, move toward 100 million tonnes of global crude steel capacity, while significantly expanding its production in the United States, where steel prices are expected to rise as automakers ramp up production following their recent deals with labour unions to end strikes.
Nippon did not give any projections of the synergies that will arise from the deal that justify the price it will pay. It said the synergies will come from pooling advanced production technology and know-how in product development, operations, energy savings and recycling.
“We feel Nippon is overpaying for those assets. This isn’t the technology space. This is still the cyclical steel industry,” said Gordon Johnson, analyst at GLJ Research.
U.S Steel shares traded up 28% at $50.50 in pre-market trading in New York on Monday.
All of US Steel’s commitments with its employees, including all collective bargaining agreements in place with its union, will be honored, Nippon said.
The company’s executive vice president, Takahiro Mori, told Reuters in an interview that the company had operated in the United States for 40 years and that it was confident the transaction would be completed.
“Standard Steel and Wheeling Nippon Steel that we own are unionized companies in the United States, we have a good history of working with unions. We see no regulatory or antitrust issues with the deal,” Mori said.
Nippon’s joint venture with Arcelor is not unionized.
Pittsburgh-based US Steel’s shares had suffered after several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to add a maker of steel used by the automobile industry.
US Steel also supplies to the renewable energy industry and stands to benefit from the Inflation Reduction Act (IRA), which provides tax credits and other incentives for such projects, something that attracted suitors.
The transaction with Nippon is expected to close in the second or third quarter of 2024, subject to approvals, US Steel said. The Committee on Foreign Investment in the United States, a US panel that scrutinizes deals for potential national security risks, is expected to review the transaction.
Citi is financial adviser to Nippon, while Barclays Capital, Goldman Sachs and Evercore are the financial advisers to US Steel.
Wall Street pointed modestly higher early Monday and appear headed for a positive open to the final full trading week of the year. Futures for the S&P 500 and the Dow Jones Industrial Average each edged 0.1% higher before the bell. US Steel shares jumped about 28% after Japan’s Nippon Steel said it would acquire the storied steelmaker.
On Friday, the S&P 500 finished down less than 0.1%, within 1.6% of its all-time high set early last year, closing out a seventh straight winning week for its longest such streak in six years.
The Dow Jones Industrial Average, which tracks a smaller slice of the US stock market, rose 0.2% and set a record for a third straight day. The Nasdaq composite climbed 0.4%.
“As the S&P approaches record levels, market participants appear undaunted,” Stephen Innes of API Asset Management said in a commentary. “The prevailing sentiment seems to be that there is no compelling reason to fade this rally until concrete evidence surfaces indicating significant economic or inflation headwinds.” Stocks overall bolted higher last week after the Federal Reserve seemed to give a nod toward hopes that it has finished with raising interest rates and will begin cutting them in the new year. Lower rates not only give a boost to prices for all kinds of investments, they also relax the pressure on the economy and the financial system.
