Nippon Steel is betting that US Steel will benefit from the spending and tax incentives in President Joe Biden’s infrastructure bill. — Reuters
TOKYO: Japan’s Nippon Steel has clinched a deal to buy US Steel for US$14.9bil in cash, prevailing in an auction for the 122-year-old iconic steelmaker over rivals including Cleveland-Cliffs, ArcelorMittal and Nucor.
The deal price of US$55 per share represents a whopping 142% premium to Aug 11, the last trading day before Cleveland-Cliffs unveiled a US$35-per-share, cash-and-stock bid for US Steel.
It is a bet that US Steel will benefit from the spending and tax incentives in President Joe Biden’s infrastructure bill.
Cleveland-Cliffs’ pursuit prompted US Steel to launch a sale process four months ago. In a meeting of its board of directors last Sunday, US Steel deemed Nippon’s offer superior to a sale to Cleveland-Cliffs, which had raised its bid in the high US$40-per-share range, people familiar with the matter said.
Nucor, the largest US steelmaker, offered to acquire US Steel in partnership with another company, one of the sources said. The identity of that company could not be learned.
ArcelorMittal 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 US$1bil in an electric arc furnace.
The acquisition of US Steel will help Nippon, the world’s fourth largest steel maker, move towards 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 on the value of the synergies that will arise from the deal to justify the price it agreed to pay.
It said the synergies will come from pooling advanced production technology and know-how in product development, operations, energy savings and recycling.
Nippon is paying the equivalent of 7.3 times US Steel’s 12-month earnings before interest, taxes, depreciation and amortisation, LSEG data showed.
The median in the steelmaking industry is seven times, and some analysts said US Steel was worth less given that its US$774mil takeover of the Big River steel mill in Arkansas in 2021 has yet to pay off in profitability.
“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.
Losing the auction for US Steel will also likely result in Cliffs failing to renew a contract to provide slabs to ArcelorMittal and Nippon’s Alabama plant that expires in 2025, the sources said.
This is because Nippon will now turn to US Steel as a supplier, the sources added.
All of US Steel’s commitments with its employees, including all collective bargaining agreements in place with its union, will be honoured, Nippon said.
Despite these assurances, the United Steelworkers Union, which had endorsed heavily unionised Cliffs as the acquirer, said it was opposed to the sale to Nippon because it did not have faith in labour agreements being upheld.
“Our union intends to exercise the full measure of our agreements to ensure that whatever happens next with US Steel, we protect the good, family-sustaining jobs we bargained for,” United Steelworkers said.
A spokesperson did not respond to a request for comment on further details on the union’s plans.
In its pact with US Steel, United Steelworkers is not afforded the right to block the company’s sale if the acquirer commits to preserving existing labour agreements.
Nippon executive vice-president Takahiro Mori said 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 unionised 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.
The transaction with Nippon is expected to close in the second or third quarter of 2024, subject to regulatory approvals, US Steel said.
The Committee on Foreign Investment in the United States, a US panel that scrutinises deals for potential national security risks, is expected to review the transaction, though most Japanese acquirers complete their deals with few issues.
Analysts also said the deal should attract little antitrust scrutiny given the limited overlap between Nippon and US Steel.
The companies said that in the event that regulators shoot down the deal, Nippon will owe US Steel a US$565mil break-up fee.
Some US lawmakers whose constituencies have major steelworker populations expressed hostility towards the deal.
Republican Senator JD Vance of Ohio said he will scrutinise its implications for the “security, industry and workers” of the United States. — Reuters
