US Steel, once the largest corporation in the world, agrees to sell itself to a Japanese company ‘Nippon Steel’ for $14.9 billion

In a $14.1 billion deal, US Steel agreed to be acquired by Nippon Steel, the biggest steel manufacturer in Japan. After winning an auction to acquire the 122-year-old iconic steelmaker, U.S. Steel (X.N) for $14.9 billion in cash, Japan’s Nippon Steel (5401.T) defeated rivals Cleveland-Cliffs (CLF.N), ArcelorMittal (MT.LU), and Nucor (NUE.N).

The deal price of $55 per share is a massive 142% premium over the closing trading day of August 11, when Cleveland-Cliffs announced a cash-and-stock bid of $35 per share for U.S. Steel. It’s a wager that the tax breaks and spending in President Joe Biden’s infrastructure bill will help U.S. Steel.

The transaction represents the most recent development in the venerable 122-year-old company’s slow downfall. Previously, it was the biggest corporation on the globe. It was a representation of American industrial power and one of the country’s first large conglomerates.

However, Nucor Steel has long since overtaken it to become the biggest US steelmaker.

“We are confident that … this combination is truly best for all,” said US Steel CEO David Burritt. “Today’s announcement also benefits the United States — ensuring a competitive, domestic steel industry, while strengthening our presence globally.”

“US Steel’s best days are ahead, together,” Burritt told investors after a conference call Monday.

As per the agreement, US Steel will continue to operate under its current name and with its headquarters located in Pittsburgh. However, the agreement might still face criticism.

The United Steelworkers union made a vow earlier this summer to only back Cleveland Cliffs, a fellow unionized American steel company, in its proposed cash and stock deal to acquire US Steel. At the time, the deal was valued at $32.53 per share, which was 40% less than Nippon’s all-cash offer. After rejecting that offer, the US Steel Board began to consider other offers.

At US Steel, the union, which has 11,000 members, criticized the Nippon Steel agreement on Monday.

“To say we’re disappointed in the announced deal between US Steel and Nippon is an understatement, as it demonstrates the same greedy, shortsighted attitude that has guided US Steel for far too long,” said USW President David McCall. “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.”

The union expressed its intention to block the agreement.

Four months ago, Cleveland-Cliffs’ pursuit forced U.S. Steel to begin the sale process. Those with knowledge of the situation said that U.S. Steel decided at a board of directors meeting on Sunday that Nippon’s offer was better than Cleveland-Cliffs’, which had increased its bid to approximately $40 per share.

According to one of the sources, Nucor, the biggest steel manufacturer in the United States, made an offer to jointly buy U.S. Steel. That company’s identity could not be ascertained.

ArcelorMittal went after US Steel as well. At a plant owned by Nippon and ArcelorMittal in Alabama, semi-finished products, or slabs, that are purchased from local and international vendors are processed to create steel sheet products. Additionally, they are spending approximately $1 billion on an electric arc furnace.

With the purchase of U.S. Steel, Nippon, the fourth-largest steel manufacturer in the world, will increase its production in the United States, where steel prices are predicted to rise as automakers ramp up production in the wake of their recent labor union agreements to end strikes. This will help Nippon reach its goal of 100 million metric tons of global crude steel capacity.

To support the amount it agreed to pay, Nippon provided no estimate of the value of the synergies that would result from the agreement. It was stated that combining advanced production technology with expertise in operations, energy conservation, recycling, and product development would result in synergies.

According to LSEG data, Nippon is making payments that are equal to 7.3 times the earnings before interest, taxes, depreciation, and amortization (EBITDA) of U.S. Steel for the previous year. The industry median for the steel industry is seven times, and some analysts have calculated that U.S. Steel’s value was lower because its acquisition of the $774 million Big River steel mill in Arkansas in 2021 has not yet resulted in a profit.

“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.

Following the announcement of the deal, U.S. Steel shares ended trading up 26% at $49.59 on Monday. Before the company announced the deal, trading in Nippon Steel shares had ended in Tokyo.

In New York, Cliffs shares surged 10% to $20.50 as investors applauded the company’s decision to hold off on making a big purchase of U.S. Steel. Cliffs announced that it would now proceed with “aggressive share buybacks” as part of a previously approved program.

Similar investor relief caused ArcelorMittal shares to rise 5% to 26.28 euros in Amsterdam.

According to the sources, Cliffs’ failure to renew a contract that expires in 2025 to supply slabs to ArcelorMittal and Nippon’s Alabama plant is likely to follow from losing the U.S. Steel auction. According to the sources, Nippon will now look to U.S. Steel as a supplier. There was no way to ascertain the contact’s worth.

UNION OPPOSES

Nippon stated that U.S. Steel will uphold all of its obligations to its workers, including any collective bargaining agreements it has with its union.

The United Steelworkers union, which had supported Cliffs as the acquirer and was heavily unionized, stated that it was against the sale to Nippon because it did not believe that labor agreements would be upheld, even despite these assurances.

“Our union intends to exercise the full measure of our agreements to ensure that whatever happens next with U.S. Steel, we protect the good, family-sustaining jobs we bargained for,” United Steelworkers said.

United Steelworkers’ agreement with U.S. Steel states that it will not be able to stop the company’s sale as long as the buyer agrees to uphold the terms of the current labor agreements.

After 40 years of operations in the US, Nippon Executive Vice President Takahiro Mori told Reuters in an interview that the company was confident the deal would go through.

“Standard Steel and Wheeling Nippon Steel that we own are unionized 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 joint venture between Nippon and Arcelor is not unionized.

According to U.S. Steel, the deal with Nippon is anticipated to close in the second or third quarter of 2024, pending regulatory approvals.

The transaction is expected to be reviewed by the Committee on Foreign Investment in the United States, a U.S. panel that examines deals for possible national security risks, even though most Japanese acquirers close their deals with little trouble.

Additionally, given the minimal overlap between Nippon and U.S. Steel, analysts predicted that the deal would not face much antitrust scrutiny. According to the companies, Nippon will be responsible for paying U.S. Steel a $565 million break-up fee if regulators reject the deal.

A few US lawmakers who represent large populations of steelworkers have expressed disapproval of the agreement. Senator JD Vance, an Ohio Republican, stated that he will carefully consider its effects on the “security, industry, and workers” of the United States. Senator John Fetterman, a Democrat from Pennsylvania, went one step further and vowed to use all of his resources “to block this foreign sale”.

Founded in 1901 by some of the biggest American magnates, such as Andrew Carnegie, J.P. Morgan, and Charles Schwab, U.S. Steel became deeply involved in the post-Great Depression and post-World War II industrial recovery in the United States.

Following several quarters of declining revenue and profit, the Pittsburgh-based company’s shares had recently underperformed, making it an appealing takeover target for competitors seeking to add a producer of steel used by the automotive industry.

In addition to automakers, U.S. Steel serves the renewable energy sector and has drawn interest from suitors because of the Inflation Reduction Act (IRA), which offers tax credits and other incentives for such projects.