Steel Mills

Japan's Nippon Steel to acquire U.S. Steel for more than $14B

Written by Michael Cowden

Japanese steelmaker Nippon Steel Corp. (NSC) will acquire U.S. Steel in an all-cash, $14.9-billion deal, the two companies announced on Monday morning.

The agreement values Pittsburgh-based U.S. Steel at $55 per share, or 40% higher than its closing stock price on Friday, Dec. 15.

The transaction has been unanimously approved by the boards of both Nippon Steel and U.S. Steel, the companies said.

It is expected to close in the second or third quarter of 2024 subject to approval by U.S. Steel shareholders, receipt of customary regulatory approvals, and other customary closing conditions.

NSC expands US presence, moves closer to goal of 100M tpy capacity

“NSC has long admired U. S. Steel, with deep respect for its advanced technologies, rich history, and talented workforce, and we believe we can jointly take on the challenge of raising our aspirations to even greater heights,” NSC president Eiji Hashimoto said in a statement.

U.S. Steel president and CEO David Burritt also cheered the deal.

“NSC has a proven track record of acquiring, operating, and investing in steel mill facilities globally – and we are confident that, like our strategy, this combination is truly ‘Best for All,'” Burritt said.

The move will give NSC, already one of the largest steelmakers in the world, annual crude steel production of nearly 95 million short tons. The company said its goal is to increase its global steel production to 111 million short tons per year (100 million metric tonnes).

Note that NSC, before the deal, had annual crude steel production capacity of ~73 million tons per year. U.S. Steel adds another 22.4 million tons to that figure.

NSC, not new to the US

NSC said the acquisition would also expand its geographic reach, giving it more of a presence in the United States – as well as in high-value automotive and electrical steels. The company had previously operated primarily in Japan, Southeast Asia, and India.

Recall that NSC, prior to the deal, already had a presence in the US. Among its joint ventures and assets are the following: AM/NS Calvert in Alabama, a joint-venture sheet mill with ArcelorMittal; Wheeling-Nippon Steel, a steel coating company in Follansbee, W.Va.; and Steelscape, a West Coast JV with Australia’s BlueScope Steel that produces of coated and painted metals.

That’s just on the sheet side. NSC noted in a presentation about the deal that it has been in the US since 1984 and that it already has more than 4,000 employees across the country.

That figure includes not only employees at its sheet operations but also at its interests in long products, pipe and tube, wheels, and crank shafts.

USS keeps Pittsburgh HQ and logo

The Japanese steelmaker will keep U.S. Steel’s iconic logo and its Pittsburgh headquarters, the companies said.

Nippon Steel said it would also honor all collective bargaining agreements with the United Steelworkers (USW) union.

The two companies said they in addition share a goal of becoming carbon neutral by 2050, and decarbonization will be a focus after the deal closes. Case in point: NSC said it is developing “breakthrough technologies” when it comes to decarbonization.

They include the following:

  • Injecting hydrogen into blast furnaces
  • High-grade steel production in large EAFs
  • Hydrogen use in direct-reduced iron (DRI) production

Industry cheers the deal – or at least doesn’t oppose it

Cleveland-Cliffs’ president and CEO Lourenco Goncalves said the scale of the deal underscored how undervalued steel is by the broader market.

“Even though U.S. Steel’s Board of Directors and CEO chose to go a different direction with a foreign buyer … we congratulate U.S. Steel on their announcement and wish them luck in closing the transaction with Nippon Steel,” Goncalves said in a statement.

Recall that Cliffs had made its intention to acquire U.S. Steel public in mid-August.

Goncalves said the Cleveland-based steelmaker would turn its attention, and capital, toward more aggressive share buybacks.

Steel Manufacturers Association (SMA) president Philip K. Bell noted the importance of the deal for both the domestic and global steel industries.

“We are anxious to see how this plays out as both Nippon Steel and U.S. Steel will need to navigate the regulatory environment, and also address concerns raised by the United Steelworkers,” he said in a phone call on Monday with SMU.

The American Iron and Steel Institute (AISI) declined to comment on the transaction.

Recall that the SMA and the AISI are the two leading domestic steel associations.

USW comes out swinging

The USW, in contrast, slammed the deal.

“To say we’re disappointed in the announced deal between U.S. Steel and Nippon is an understatement,” USW International president David McCall said in a statement.

“We remained open throughout this process to working with U.S. 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,” he added.

McCall said the two companies had not reached out to the USW about the deal. He alleged that represented a “violation” of a partnership agreement that requires U.S. Steel to notify the union of a change in control of ownership.

“Based on this alone, the USW does not believe that Nippon understands the full breadth of the obligations of all our agreements, and we do not know whether it has the capacity to live up to our existing contract,” McCall said.

The USW will also seek government intervention in the deal, which McCall alleged had implications for “the national security interests of the United States.”

“Rest assured, our union will hold management at U.S. Steel accountable to every letter of our collective bargaining and other existing agreements,” he said.

Analyst reaction

The deal underscores an “amazing” turnaround engineered by U.S. Steel and aided by volatile post-pandemic steel markets, CRU principal Josh Spoores said.

“Now that an agreement is in place, our focus will turn toward what may be an easy vote by shareholders, yet a possibly contentious reply from the union,” Spoores noted.

“Regardless, with Nippon Steel taking over this historic company, we expect they will be able to invest for the future – ensuring a competitive North American steel market and manufacturing environment,” he added.

There remains the question of what others who had been interested in acquiring U.S. Steel will do. “Will these companies now look to other North American assets as part of their corporate strategy?” Spoores asked.

Wolfe Research equity analyst Timna Tanners said the deal could see “limited risk of completion” in a research note on Monday.

“We expect a CFIUS review but limited risk since Japan is a strategic ally,” Tanners said.

CFIUS stands for the Committee on Foreign Investment in the United States. It is a government agency that reviews transactions that could have national security implications.

“The union already expressed displeasure with the deal, but we aren’t convinced this is an impediment,” she added.

The acquisition by NSC comes as something of a surprise given that the company has generally expanded abroad via joint ventures such as AM/NS Calvert and Usiminas in Brazil. But that also means less risk of “excess concentration” compared to another domestic steelmaker acquiring U.S. Steel, Tanners indicated.

“We don’t see any other bid near this lofty price and expect status quo market behavior as X’s assets would operate as an independent subsidiary,” she added.

Michael Cowden

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