Nippon Steel agrees to buy US Steel for $14.9bn

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Nippon Steel has agreed to buy US Steel in a $14.9bn deal, as the Japanese group targets the American market with its largest-ever acquisition.

The world’s fourth-biggest steelmaker by production said on Monday that it would pay $55 a share in cash for the Pittsburgh-based company. 

The price represents a 40 per cent premium to US Steel’s closing share price on Friday, but is more than 140 per cent above where its stock was trading before domestic rival Cleveland-Cliffs offered $7.3bn for the company in August.

US Steel had rebuffed Cleveland’s offer and said it would examine its strategic options. The process attracted interest from domestic and overseas steelmakers, according to people familiar with the transaction. The winning offer from Nippon Steel, which values US Steel’s equity at $14.1bn, follows a tradition of Japanese companies paying handsomely for their overseas acquisitions. Including debt, the transaction values US Steel at $14.9bn.

Shares in US Steel surged 26 per cent to trade just below $50 on Monday afternoon.

The company, with almost 23,000 employees, has been a symbol of US manufacturing since it was formed in 1901. Financier John Pierpont Morgan bought Andrew Carnegie’s steel group and combined it with rivals to form what was then the world’s largest company.

One fund manager who holds Nippon Steel shares said the deal looked, on the face of it, “terrible” for shareholders, arguing it was another example of Japanese companies failing to act in their own investors’ interests.

Eiji Hashimoto, Nippon Steel’s president, said however: “We are excited that this transaction brings together two companies with world-leading technologies and manufacturing capabilities.”

The deal drew a furious response from the United Steelworkers union, which said that neither US Steel or Nippon had consulted it.

“We remained open throughout this process to working with US Steel to keep this iconic American company domestically owned and operated, but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company,” said USW president David McCall.

The union said it would “strongly urge” regulators to scrutinise Nippon’s deal and determine whether it served US national security interests and benefited workers.

Nippon has promised that all of US Steel’s commitments with employees would be honoured, including all collective bargaining agreements in place with its unions.

US Steel said when it rejected Cleveland’s offer in August that it had received multiple unsolicited expressions of interest. According to one person familiar with the deal, however, Nippon Steel, which employs more than 106,000 people, was approached after that point. The decision to make such a large bid was made quickly, the person added.

“The bet had to be on the US market,” this person said, pointing to the opportunities created by President Joe Biden’s Inflation Reduction Act and the political obstacles to expanding in the likes of China or Russia.

The acquisition is the latest in what bankers say is a growing wave of Japanese companies pushing for overseas acquisitions as a response to their shrinking domestic market and the geopolitical constraints Chinese groups now face in buying US corporations.

Bankers advising on several outbound deals this year said that the weaker yen, which has fallen against the US dollar for much of 2023, had not noticeably deterred chief executives from seeking deals aimed primarily at expanding market share in the US.

The transaction will need to be approved by US competition authorities. It comes after much of the country’s steel industry has consolidated, leaving Cleveland-Cliffs, Nucor, Steel Dynamics and US Steel as the four large players.

Josh Spoores, principal steel analyst at commodities consultancy CRU, said that while Nippon Steel’s offer was “at the high end of valuations . . . [it] isn’t unreasonable”. It “properly values” US Steel’s expected 2024 earnings of $2bn, he said, and the incremental earnings from strategic investments it promised to deliver by 2026. 

There might be some pushback to the takeover from critics on national security grounds, Spoores said, but “unless Nippon Steel move[s] assets out of the US, I don’t see any issues with this”. The company, he noted, already had a sizeable presence in the US. 

Nippon Steel was advised by Citigroup, while US Steel was advised by Goldman Sachs and Barclays.

Additional reporting by Taylor Nicole Rogers in New York