TOKYO: Japan's Nippon Steel clinched a deal on Monday to buy US Steel for US$14.9 billion (RM69.9 billion) 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 per cent 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 on 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, Reuters has reported. 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$1 billion in an electric arc furnace.
The acquisition of US Steel will help Nippon, the world's fourth largest steel maker, move toward 100 million metric 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 labor unions to end strikes.
Nippon did not give any projection 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 (Ebitda), LSEG data shows. The median in the steelmaking industry is seven times, and some analysts said US Steel was worth less given that its US$774 million 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.
US Steel shares ended trading up 26 per cent at US$49.59 on Monday following the deal announcement. Nippon Steel shares had ended trading in Tokyo before the company unveiled the deal.
Cliffs shares jumped 10 per cent to US$20.50 in New York as shareholders cheered the company deciding against splashing out on US Steel. Cliffs said it would now press on with "aggressive share buybacks" under a program it had previously authorized.
ArcelorMittal shares also rose 5.0 per cent to €26.28 in Amsterdam on similar investor relief.
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. The value of the contact could not be learned.
Union opposes
All of US Steel's commitments with its employees, including all collective bargaining agreements in place with its union, will be honored, Nippon said.
Despite these assurances, the United Steelworkers union, which had endorsed heavily unionised Cliffs as the acquirer, said it is opposed to the sale to Nippon because it did not have faith in labor 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," 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 preserve existing labor agreements.
Nippon executive vice president Takahiro Mori told Reuters in an interview that the company had operated in the US 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.
Nippon's joint venture with Arcelor is not unionised.
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 US, 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$565 million break-up fee.
Some US lawmakers whose constituencies have major steelworker populations expressed hostility toward the deal. Republican Senator JD Vance of Ohio said he will scrutinise its implications for the "security, industry, and workers" of the US. Democratic Senator John Fetterman of Pennsylvania went further, vowing to do anything in his power "to block this foreign sale".
US Steel, founded in 1901 by some of the biggest US magnates, including Andrew Carnegie, JPMorgan and Charles Schwab, became intertwined with the US' industrial recovery following the Great Depression and World War Two.
The Pittsburgh-based company's shares had underperformed of late, following several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to add a maker of steel used by the automobile industry.
Beyond car makers, US Steel supplies the renewable energy industry and stands to benefit from the Inflation Reduction Act (IRA), which provides tax credits and other incentives for such projects, something that attracted suitors. - Reuters