Overview
Acquirer: Nippon Steel (OTCMKTS: NPSCY)
Founded: 1934 (Japan)
CEO: Eiji Hashimoto
Employees: 105,796
Market Cap: $20.31B
LTM Revenue: 6.177T Yen (2019)
Target: U.S Steel (NYSE: X)
Founded: March 2, 1901 (U.S)
CEO: David Burritt
Employees: 22,053
Market Cap: $12.42B
LTM Revenue: $15.6B
Total Transaction Value: $14.1B
Acquirer Advisors: Citi (Financial), Ropes & Gray LLP (Legal)
Target Advisors: Barclays Capital Inc., Goldman Sachs & Co. LLC, Evercore (Financial), Milbank LLP, and Wachtell, Lipton, Rosen & Katz (Legal)
Nippon Steel:
Japan’s largest steelmaker and one of the world’s leading steel manufacturers. It has a global crude steel production capacity of approximately 66 million tons and employs approximately 100,000 people in the world. It has a presence in 15 countries across 5 continents. It established a joint venture in the U.S around 45 years ago and has focused on building strong relationships. It is focused on providing world-leading technologies and manufacturing capabilities that contribute to society.
U.S Steel:
Founded in 1901 as a conglomerate of the 3 major steel companies by J.P. Morgan for $492 million, equivalent to $18 billion today. It has a strong focus on sustainability and safety. With an emphasis on innovation, it serves the automotive, construction, appliance, energy, containers, and packaging industries with high-value-added steel products. The company maintains advanced iron ore production and has an annual steelmaking capacity of 22.4 million tons.
Trump’s Approval:
Nippon is a deep-pocketed player that plans to expand and rejuvenate aging operations in the U.S that have struggled against foreign competitors. It plans to proceed with its purchases after reaching an agreement with the administration to resolve security concerns. In Q4 of 2023, it was blocked by the. Biden administration on national security grounds. The new agreement gives the new administration authority over the Pittsburgh-based steelmaker’s production and trade matters. It also calls for investment of $11 billion within the next 3 years, on top of a planned steel mill priced at $ 3 billion.
Trump had criticized the deal during his campaign, but has now opened up to it as Nippon promises increased U.S investment. While the acquisition could threaten national security, agreed-upon enforcement and monitoring measures will have to be set in place to mitigate risk.
Nippon will become a major supplier of American-made steel; however, prices in the U.S have weakened in recent months after buyers have stocked up in advance of additional tariffs. Manufacturers have also been cautious about ramping purchases, bracing for a slowdown in economic activity. Additionally, there are further concerns about job security as U.S Steel employs roughly 14,000 in the U.S. Local union officials have voiced concerns over the acquisition, yet Trump believes that increased tariffs on imports will protect jobs in the industry.
Integration Outlook
Short-Term:
Nippon’s acquisition is meant to bolster U.S steel production, which has been struggling against its counterparts. It is now the 2nd largest global steel producer now only behind China’s Baowu Group. There is some uncertainty, though, as tariffs, particularly steel, have jumped close to 50%, unclear how it will affect the acquisition and international steel prices in the coming months. This may raise costs for U.S manufacturers.
In a planned all-cash transaction, it will buy shares at $55.00, also assuming all debt, which is roughly $0.8 billion. At the time of the announcement in 2023, it represented a 40% premium to a closing price of roughly $39.33, jumping shares up by 21%. Today, the price floats around $50, and after Trump’s announcement, shares jumped to $54. Today’s premium is much smaller than the one two years ago, yet the promised investment makes up for it.
Long-Term:
This acquisition shows signs of positive growth strategically and financially. It will enhance the manufacturing and technological capabilities to expand geographically. Nippon is located across all 5 continents, excluding Australia, and this move will increase their production and reach significantly in the Americas. South America is an emerging economy showing strong signs of future growth. Nippon has a strong presence in Brazil, and with U.S proximity, U.S steel may have opportunities to expand South. Nippon has a goal of producing 100 million tons annually and is shy by 14 million. With new plants and planned construction, this goal may not be too far off in the future.