In the largest foreign acquisition of an American company this year, Tokyo-based Nippon Steel has agreed to purchase historic steelmaker United States Steel Corporation for $14.9 billion dollars in cash. The staggering all-cash offer of $55 per share prevailed over competing bids from several leading domestic steelmakers at the conclusion of U.S. Steel’s months-long auction process this past weekend.
Nippon Steel’s offer represents an astronomical 142% premium over U.S. Steel’s August 11th’s closing share price of $22.75, the last trading session before Cleveland-Cliffs publicly revealed its intent to acquire the iconic 122-year old steelmaker for $35 per share in a cash and stock deal. The unsolicited bid set off a bidding war between some of the industry’s largest players.
With the lofty final sale price equating to a multiple of 7.3 times U.S. Steel’s trailing twelve-month earnings (EBITDA), analysts continue to debate whether Nippon ultimately overpaid for the company. Most point to the deal as a long-term strategic bet that America’s recovering manufacturing base and President Biden’s investments into infrastructure and clean energy will provide strong tailwinds to domestic steel demand and pricing power.
Decades-Old Rivalry Reignited With Blockbuster Steel Megamerger
Based in Tokyo and tracing its origins to a state-owned steel company founded in 1934, Nippon Steel has grown into one of the industry’s largest global producers. The $14.9 billion megadeal to acquire U.S. Steel simultaneously serves three crucial strategic aims for the Japanese steelmaking giant:
- It provides Nippon Steel with an instant production footprint and market share growth in the expanding American steel marketplace. With domestic manufacturing on the rebound and President Biden making unprecedented investments into infrastructure, clean energy, and promoting American industry through recent legislation like the Inflation Reduction Act, Nippon is betting big on a U.S. steel boom over the next decade.
- Adding U.S. Steel’s assets and existing North American capacity allows Nippon Steel to boost total global crude steel production volumes well above 100 million metric tons annually—cementing its status as a leading global producer based on scale.
- From a technology and innovation perspective, Nippon Steel cited “pooling advanced production technology and know-how” from two industry leaders driving efficiencies in areas like product development, operations, energy utilization and recycling processes.
While light on specifics, these synergies and areas of complementary expertise between firms with over 200 years of collective steelmaking history could be substantial when fully realized.
Rust Belt Icon Stays American-Made, But Union Opposition Could Follow
Founded in 1901 by leading American industrialists including Andrew Carnegie and J.P. Morgan, U.S. Steel quickly grew into the world’s first billion-dollar company and became deeply intertwined with America’s 20th century industrial emergence.
The company operates mills and production facilities across the Rust Belt steel towns of the Midwest and Northeast that both fueled the nation’s early manufacturing dominance and faced the brunt of foreign competition and industry changes in recent decades.
Nippon has reportedly committed to keeping steel production and operations stateside rather than offshoring assets abroad. However, the United Steelworkers union remains strongly opposed to sale of this American-made steel icon to a foreign acquirer. After endorsing domestic producer Cleveland-Cliffs’ previous offer for U.S. Steel, the union has threatened to utilize the full scope of its collective bargaining powers to oppose Nippon Steel as it finalizes the landmark acquisition over the next 12-18 months.
CFIUS Reviews Expected As Largest Japanese Acquisition in America This Year
Additional scrutiny is expected from the Committee on Foreign Investment in the United States (CFIUS), which reviews foreign acquisitions of American firms to weigh possible national security implications. Earlier this year, CFIUS extended its oversight into several industries previously falling outside traditional defense realms.
However, most antitrust experts predict relatively smooth sailing for the deal’s approval, likely following some additional regulatory disclosures from Nippon Steel. With limited head-to-head market share overlap between the Japanese steelmaker and U.S. Steel’s predominantly Midwest-focused production footprint, Nippon is unlikely to trigger monopoly concerns that have hindered other recent mega-mergers in the global industry.
Nonetheless, as both the largest foreign acquisition of an American company and the second largest steel industry merger of all time, the blockbuster deal between two metalmaking legends will continue making headlines well into 2024 pending its final regulatory green light.
Cleveland-Cliffs Leads Rally In Stocks Of Spurned U.S. Steel Suitors
Among American steelmakers involved in the U.S. Steel sweepstakes, Monday’s sale announcement ignited an investor relief rally from runners-up no longer burdened with an expensive megadeal.
Cleveland-Cliffs stock jumped nearly 10% at Monday’s close on the news that Nippon ultimately outbid its offer believed to be in the high $40 per share range. The Ohio-based firm looks toward to pressing onward with “aggressive share buybacks” instead of taking on sizable debt from the U.S. Steel acquisition.
Meanwhile, Pennsylvania’s Nucor Corporation saw shares rise 6% upon the deal’s unveiling Monday morning. As largest domestic steel producer by volume, Nucor was reported as partnering with an unnamed firm in its own attempt to buy U.S. Steel.
Even European steel giant ArcelorMittal enjoyed a 5% stock bump in the wake of the Japanese megadeal announcement. Mittal had also been linked in media coverage as an active bidder for U.S. Steel in the final stages of the company’s sale process.
With well over 30% premiums left on the table from their peak offers, expect domestic steel giants like Cleveland-Cliffs and Nucor to continue scouring the market for consolation mergers and acquisitions in 2023. Their next targets will aim to replicate the capacity and diversification upside that ultimately empowered Nippon Steel pay over 7 times EBITDA to bring an American steel legend into its global empire this winter.