US Markets
Monday, December 18th, 2023 3:20 pm EDT
Key Points
- Acquisition Deal: Nippon Steel has successfully acquired U.S. Steel for $14.9 billion in cash, outbidding rivals including Cleveland-Cliffs and ArcelorMittal. The deal price of $55 per share represents a substantial 142% premium to the last trading day before Cleveland-Cliffs initiated a competing bid.
- Impact on Industry Dynamics: The acquisition positions Nippon Steel, the world’s fourth-largest steelmaker, to move towards a global crude steel capacity of 100 million tonnes. It significantly expands Nippon’s production in the United States, aligning with the expectation of rising steel prices as automakers increase production following recent labor union agreements to end strikes.
- Concerns and Market Reaction: Some analysts, such as Gordon Johnson from GLJ Research, express concerns about Nippon potentially overpaying for U.S. Steel’s assets, emphasizing the cyclical nature of the steel industry. Despite this, U.S. Steel shares traded up 28% at $50.50 in pre-market trading. Nippon reassures that all commitments with U.S. Steel employees, including union agreements, will be honored, and the transaction is expected to close in the second or third quarter of 2024, pending approvals from regulatory bodies, including the Committee on Foreign Investment in the United States. Citi serves as the financial adviser to Nippon, while Barclays Capital, Goldman Sachs, and Evercore advise U.S. Steel.
Japan’s Nippon Steel has successfully secured a deal to acquire U.S. Steel for $14.9 billion in cash, emerging victorious in an auction for the iconic 122-year-old steelmaker. This deal, priced at $55 per share, represents a significant 142% premium to U.S. Steel’s last trading day before Cleveland-Cliffs initiated a $35-per-share cash-and-stock bid on August 11. The competitive landscape included other contenders like Cleveland-Cliffs and ArcelorMittal.
Cleveland-Cliffs’ bid triggered U.S. Steel to initiate a sale process, and in a board meeting on Sunday, the company deemed Nippon’s offer superior to Cleveland-Cliffs’ revised bid in the high $40-per-share range. The acquisition is also a setback for ArcelorMittal, which pursued U.S. Steel. Nippon and ArcelorMittal jointly own an Alabama plant, investing around $1 billion in an electric arc furnace.
For Nippon, the acquisition helps move towards a global crude steel capacity of 100 million tonnes, becoming the world’s fourth-largest steelmaker. Additionally, it significantly expands production in the United States, where rising steel prices are anticipated due to increased production by automakers following recent labor union agreements to end strikes.
Despite the optimism surrounding the deal, some analysts, such as Gordon Johnson from GLJ Research, express concerns about Nippon potentially overpaying for U.S. Steel’s assets, emphasizing the cyclical nature of the steel industry compared to the technology sector. U.S. Steel shares, however, saw a notable 28% increase in pre-market trading in New York, reaching $50.50.
Nippon did not provide specific projections for synergies arising from the deal but mentioned that these synergies would result from combining advanced production technology and know-how in various aspects such as product development, operations, energy savings, and recycling.
Nippon reassured that all commitments with U.S. Steel employees, including collective bargaining agreements, would be honored. The company’s executive vice president, Takahiro Mori, emphasized Nippon’s positive history of working with unions and expressed confidence in completing the transaction with no anticipated regulatory or antitrust issues. Notably, Nippon’s joint venture with Arcelor is not unionized.
The acquisition is poised to benefit U.S. Steel, which has experienced declining revenue and profit in recent quarters. Additionally, the company supplies steel to the automobile and renewable energy industries, positioning it to leverage incentives such as the Inflation Reduction Act (IRA) that provides tax credits for renewable energy projects.
The transaction is expected to close in the second or third quarter of 2024, subject to approvals, with the Committee on Foreign Investment in the United States (CFIUS) anticipated to review the deal. Nippon is advised by Citi, while Barclays Capital, Goldman Sachs, and Evercore serve as financial advisers to U.S. Steel.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/18/japans-nippon-steel-plans-to-acquire-us-steel-for-7-billion.html
