Final Thoughts

Final thoughts

Written by Michael Cowden

I was asked to do an interview for a cable news channel in Ohio about Nippon Steel’s planned acquisition of U.S. Steel for more than $14 billion.

They sent me a few questions to prepare to answer. It was a very TV experience. People were running late. Things were rushed. I’m not sure that much more than a sound bite will come of it, if that.

I’ve done this stuff before. So that wasn’t unexpected. Still, let’s pretend we’re in an alternate universe where I had time to provide thoughtful answers to the questions I was asked – as we try to give guests on our Community Chats.

Was the deal a surprise?

On the one hand, it wasn’t a surprise at all. Cleveland-Cliffs announced its intention to acquire U.S. Steel in mid-August. The market had been waiting on an announcement since early November. I was surprised that a deal hadn’t been announced sooner. Also, U.S. Steel disclosed from the start that there were multiple bidders.

On the other hand, yes, I was surprised that U.S. Steel was bought by Nippon Steel alone. I think many people thought that if Nippon Steel were involved, it would come via a joint bid with ArcelorMittal. ArcelorMittal, for example, operates AM/NS Calvert – a joint-venture sheet mill with Nippon Steel in Alabama. And Nippon Steel, as others have noted, often expands beyond Japan – I think of AM/NS India, for example – via joint ventures.

But perhaps I shouldn’t have been. Nippon, as noted in an investor presentation on the deal, has been in the US since 1984. I already mentioned Calvert. It also has Wheeling-Nippon, a steel coating operation in West Virginia. And Steelscape, an important steel and metal coating and painting operation on the West Coast – that one a JV with Australian steelmaker BlueScope. That’s just on the flat-rolled steel side. All told, the company employs more than 4,000 people across the US.

I was also surprised at the valuation. More than $14 billion, which is nearly double what Cliffs offered for U.S. Steel in August. But there, too, it makes some sense. U.S. Steel has invested a lot in its operations – including Big River Steel 1 and Big River Steel 2 in Arkansas. Those mills will make things like high-margin automotive and electrical steels, areas where Nippon Steel has money and technical expertise to contribute.

Finally, the US steel industry over the last three years has been really profitable – enjoying some of its best times in decades. Maybe since WWII. Lourenco Goncalves, Cliffs’ chairman, president, and CEO, said the deal underscores that the US steel industry is undervalued. It looks like he has a point there.

What are the implications for the US?

I think I was supposed to give an alarmist answer to that question. I didn’t. An iconic US steelmaker will retain its logo and its headquarters in Pittsburgh. I don’t see any huge implications for US interests there.

Frankly, there had been some concerns that the US market could become too consolidated if U.S. Steel had been acquired by another domestic steelmaker. Auto companies had already opposed the deal. I think an acquisition by Nippon Steel lessens the risk of a deal running into antitrust concerns.

It might even be a good deal for manufacturers if the sheet market is a little more competitive. It’s important to have a competitive US steel market if we’re serious about encouraging trends like “reshoring,” right?

Also, I don’t think this will be the last deal we’ll see in steel. Perhaps it will be the biggest. But other steelmakers had bid on U.S. Steel. What do they do now? I wouldn’t be surprised if we saw some of them looking to buy other steel mills in North America that might be for sale.

And then there is the question of whether Nippon Steel really wants all of U.S. Steel. U.S. Steel, for example, owns a steel mill in Slovakia. Does Nippon Steel want that? Or do they perhaps sell it to someone else? Again, I think we could see a flurry of deals following this one.

If it’s not a bad deal, then why are people speaking out against it?

This was brought up in reference to comments made by the USW and several US senators shortly after the deal was announced on Monday morning.

I’m not sure I understand some of those objections. If a domestic company wanted U.S. Steel, they could have done what you do in capitalism – pay more for it. I think what we might be dealing with is symbolism and politics.

But, in practical terms, Nippon Steel has said they will honor all agreements with the USW. They want to make money at U.S. Steel and to employ American workers to do that. This is not some conspiracy to shutter US industrial capacity and fire US workers. US shareholders benefit, US workers should benefit, and so should US steel consumers – what’s wrong with people making cool stuff and making money along the way?

I was also asked about national security concerns. We’ve certainly seen that issue raised before in steel, most recently with the Section 232 tariffs introduced by former President Trump in 2018 and continued by President Joe Biden. But those tariffs have since been scaled back from US allies such as Canada, the UK, and Japan.

I have a little bit of a hard time seeing how Japan – a US ally, and someplace where we have significant military operations – is a threat to national security. Look, I’m not saying that steel isn’t a matter of national security. I just don’t think it applies in the case of a Japanese company investing in and maintaining a really iconic US company.

I get it, reasonable people can disagree on trade policy. But can we stop throwing around the term “foreigners” as if it were a bad word?

Foreign ownership is hardly new to steel. In Ohio alone, for example, NorthStar Bluescope is owned by an Australian company. ArcelorMittal, which is based abroad, has mills across North America.

One of steel’s most prominent CEOs, Goncalves, is a proud American and a proud immigrant. So is Mark Millett, one of the founders of SDI, who is from England. Heck, that was true of Andrew Carnegie as well – who was born in Scotland and made his fortune here.

Speaking of Carnegie and fortunes, let’s end on this fun fact. Nippon’s deal for U.S. Steel is a big one. But it’s not the biggest steel deal.

The deal that created U.S. Steel was valued $1.4 billion in 1901 dollars. That’s around $50.6 billion today.

Michael Cowden

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