Nippon Steel Makes Historic Move: Acquires U.S. Steel in $14.9 Billion Deal


Nippon Steel (5401.T) of Japan won a sale to buy U.S. Steel (X.N) for $14.9 billion in cash, beating out Cleveland-Cliffs (CLF.N), ArcelorMittal (MT.LU), and Nucor (NUE.N). U.S. Steel is a 122-year-old iconic steelmaker.

The price of the deal, $55 per share, is 142% higher than the last business day, August 11, when Cleveland-Cliffs announced a cash-and-stock offer of $35 per share for U.S. Steel. It is a bet that President Joe Biden’s building bill will help U.S. Steel through tax breaks and spending plans.

Because Cleveland-Cliffs was interested, U.S. Steel started the sale process four months ago. People who know about the situation say that at a meeting of U.S. Steel’s board of directors on Sunday, the company decided that Nippon’s offer was better than a sale to Cleveland-Cliffs, which had raised its bid to around $40 per share.

One of the sources said that Nucor, the biggest steelmaker in the U.S., made an offer to buy U.S. Steel with another business. It was not possible to find out who that company was.

Reuters says that ArcelorMittal also looked at U.S. Steel. A factory in Alabama is owned by both Nippon and ArcelorMittal. It makes steel sheets by processing slabs, which are semi-finished goods that come from suppliers in and outside of Alabama. Plus, they’re putting about $1 billion into an electric arc forge.

By buying U.S. Steel, Nippon, the fourth-largest steelmaker in the world, will be able to reach its goal of 100 million metric tons of global crude steel capacity. It will also be able to make a lot more steel in the US, where prices are likely to rise as automakers ramp up production after recent agreements with labor unions to end strikes.

It’s not clear from Nippon’s offer what the deal’s synergies will be worth, which is why it decided to pay that price. The companies said that they would be able to work together better by sharing advanced production technology and their knowledge of how to make products, run businesses, save energy, and recycle.

LSEG data shows that Nippon is paying 7.3 times U.S. Steel’s profits before interest, taxes, depreciation, and amortization (EBITDA) for the past 12 months. Many people in the steel business say that U.S. Steel is worth less than seven times that amount because its $774 million purchase of the Big River steel mill in Arkansas in 2021 has not yet turned a profit.

“We think Nippon is paying too much for those assets.” It’s not the tech space here. “The steel business is still going through cycles,” said GLJ Research expert Gordon Johnson.

After the news of the deal came out, U.S. Steel shares went up 26% to $49.59 on Monday. Tokyo had stopped trading in Nippon Steel shares before the company announced the deal.

Cliffs stock went up 10% to $20.50 in New York as owners were happy that the company didn’t spend a lot of money on U.S. Steel. According to Cliffs, it will now go ahead with “aggressive share buybacks” under a plan it had already approved.

In Amsterdam, shares of ArcelorMittal also went up 5% to 26.28 euros as investors felt better about the company.

Sources say that if Cliffs loses the bid for U.S. Steel, it probably won’t renew a deal that ends in 2025 to supply slabs to ArcelorMittal and Nippon’s Alabama plant. The reason for this is that Nippon will now buy steel from U.S. Steel, the people said. It was not possible to find out what the contact was worth.

Nikkei said that U.S. Steel will keep all of its promises to its workers, including all of its collective bargaining deals with its union.

Even with these promises, the United Steelworkers union, which had backed Cliffs as the buyer because it was made up of a lot of union members, said it was against the sale to Nippon because it didn’t trust that labor deals would be followed.

“Our union intends to exercise the full measure of our agreements to ensure that whatever happens next with U.S. Steel, we protect the good, family-sustaining jobs we bargained,” United Steelworkers stated.

When asked for more information about the union’s plans, a spokesperson did not reply. United Steelworkers’ agreement with U.S. Steel says that the union can’t stop the sale of the company as long as the new owner promises to keep the current labor agreements.

In an interview with Reuters, Nippon Executive Vice President Takahiro Mori said that the company had been doing business in the US for 40 years and was sure the deal would go through.

Standard Steel and Wheeling Nippon Steel, two companies we own in the US, are organized. We’ve worked with unions before and liked it. “The deal doesn’t go against any rules or laws against unfair competition,” Mori said.

The joint partnership between Nippon and Arcelor is not unionized.

U.S. Steel said the deal with Nippon should go through in the second or third quarter of 2024, as long as the government approves it.

The deal is likely to be looked at by the Committee on Foreign Investment in the United States, a U.S. group that checks deals for possible threats to national security. However, most Japanese buyers are able to close their deals without any problems.

Analysts also said that the deal shouldn’t be closely looked at by trade authorities because Nippon and U.S. Steel don’t compete with each other very much. They said that Nippon would have to pay U.S. Steel $565 million to break up the deal if officials said no to it.

Some politicians in the U.S. whose districts have a lot of steelworkers spoke out against the deal. GOP Ohio Senator JD Vance said he will carefully look into what it means for “security, industry, and workers” in the US. John Fetterman, a Democrat from Pennsylvania, went even further and said he would do everything he could “to block this foreign sale.”

Some of the richest people in the United States, like Andrew Carnegie, J.P. Morgan, and Charles Schwab, started U.S. Steel in 1901. It was an important part of the country’s economic recovery after the Great Depression and World War II.

The Pittsburgh-based company’s shares haven’t done well lately after several quarters of falling sales and profits. This made it an attractive target for competitors who want to add a steel maker for the car industry.

In addition to supplying car companies, U.S. Steel also works with the green energy industry. The company stands to gain from the Inflation Reduction Act (IRA), which offers tax credits and other benefits for such projects, which made it appealing to potential buyers.

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