Japan's Nippon Steel acquires US Steel for US$14.1 billion

Nippon Steel, a Japanese steelmaker, has closed a deal to buy US Steel for US$14.1 billion in an all-cash offer.

Japan's Nippon Steel acquires US Steel for US$14.1 billion
The logo of Nippon Steel Corporation is displayed at the company headquarters in Tokyo, Japan in this photo taken by Kyodo May 1, 2019. Mandatory credit Kyodo/via REUTERS

The backstory: In 1901, financier heavyweights JP Morgan and Charles Schwab bought Andrew Carnegie’s steel company and merged it with their own company, giving birth to US Steel, a powerhouse riding America's industrial boom. At its peak, it stood tall among the world's giants. But as time went on, the entire US steel sector faced tougher competition from cheaper global rivals. Once pivotal to American economic strength, US Steel even had a hand in shaping antitrust laws. Fast forward to today, the company has over 22,000 employees globally, including over 14,000 in the US. 

In recent years, while still turning a profit, US Steel has slipped in its steel output and market value, falling behind other American steel firms. Despite still making money, US Steel found itself in a bidding war over the past several months, facing potential acquisition.

More recently: US Steel turned down an unsolicited US$7.3 billion buyout proposal from rival Cleveland Cliffs in August. It said that it didn't like how Cleveland-Cliffs was pressuring for a quick yes without letting it thoroughly review all the terms of the offer. Several other steel firms were also showing interest in buying out the company, so its future was up in the air.

The development: Nippon Steel, a Japanese steelmaker, has closed a deal to buy US Steel for US$14.1 billion in an all-cash offer. The transaction is worth about $14.9 billion including the assumption of debt. The US$55 per share deal represents a 142% premium from August 11, when Cleveland-Cliffs proposed its US$35 per share offer. The market reacted quickly on Monday – US Steel shares jumped 26%, and Cleveland-Cliffs shares went up 10%. 

This buyout will create one of the biggest global steel companies outside of China. Nippon is looking to expand its US presence, riding the wave of US government investments in related sectors. It’s said it will honor the existing contracts with the US Steelworkers union and would keep US Steel’s name, brand and headquarters the same. The deal, pending approvals, is expected to close in the second or third quarter of next year. But, the United Steelworkers union isn’t keen on the company being bought by a foreign firm and said it would try to block the acquisition.

Key comments:

"Today's announcement also benefits the United States, ensuring a competitive, domestic steel industry, while strengthening our presence globally,” said US Steel CEO David Burritt.

“At this juncture, we cannot determine whether your unsolicited proposal properly reflects the full and fair value of the Company. For all of the above reasons, the Board has no choice but to reject your unreasonable proposal,” said US Steel CEO David Burritt in a letter when rejecting the initial buyout proposal from rival Cleveland Cliffs in August.  

"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," said United Steelworkers president David McCall.

"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.