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Nippon Steel’s $14.9bn Acquisition of U.S. Steel

By Sam Oberly, Julia Weinrod, Yuyu Huang, Talia Hovsepian, Jenny Sun (Johns Hopkins University) and Samuel Smith, Saevuk Atwal, Matthew Lam, Alexandre Anjarry (University of Warwick)


Photo: Yasin Hemmati (Unsplash)

 

Overview of the deal


Acquirer: Nippon Steel Corporation

Target:  United States Steel Corporation

Implied Equity Value: $14.1bn

Total Transaction Size: $14.9bn

Closed date: Expected Q2 or Q3 2024

Target advisor: Barclays Capital, Goldman Sachs and Evercore (financial), Milbank and Wachtell (legal)

Acquirer advisor: Citi (financial), Ropes & Gray (legal)


On December 18, 2023, Nippon Steel Corporation announced that they would acquire US Steel Corporation for $55 USD per share, a 40% premium on the closing price on December 15, 2023. With the unanimous approval by the Board of Directors of both companies, this deal concludes the bidding war that dates back to August 11, 2023, when Cleveland-Cliffs offered a $35 USD per share bid for US Steel. 


For Nippon Steel Corporation, this deal simultaneously improves their production capabilities in the US while taking a significant step towards their strategic goal of 100 Million tonnes of global crude steel capacity annually (from 66 Mt/Y to 86 Mt/Y). For US Steel, this transaction provides immediate value to US Steel’s investors and preserves the commitments to US Steel’s workers and United Steelworkers Union.


“NSC has a proven track record of acquiring, operating, and investing in steel mill facilities globally – and we are confident that, like our strategy, this combination is truly Best for All. This transaction realizes the tremendous value today in our company and is the result of our Board of Directors’ comprehensive and thorough strategic alternatives process.” - David B. Burrit President and CEO (U. S. Steel)

Company Details (Acquirer - Nippon Steel Corporation)


Nippon Steel Corporation, based in Japan, is one of the world’s largest producers of steel. The company’s core business is Steelmaking and Steel Fabrication, and the corporation also has Engineering and Construction, Chemicals and Materials, and System Solutions segments.


Founded in 1950, headquartered in Tokyo, Japan

CEO: Eiji Hashimoto

Number of employees: 105,796

Market Cap: $21.8bn (as of 13/01/2024)

EV: $37.49bn

LTM Revenue: $59.02bn

LTM EBITDA: $6.50bn


Recent Transactions: $774m acquisition of Big River Steel (Dec 2020)


Company Details (Target - United States Steel Corporation)


Established in 1901, United States Steel Corporation (U.S. Steel) stands as a prominent figure in the steel industry, with a robust international presence, notably in North America and Central Europe. The company excels in producing innovative steel products, including its proprietary XG3® advanced high-strength steel, and caters to a variety of needs with its diverse product lines, including flat-rolled and tubular steel products. Its product offerings cover essential sectors like automotive, construction, appliance, energy, containers, and packaging. U.S. Steel's significant capabilities in both raw steelmaking and iron ore production underpin its ability to address specific market needs. This operational scale, coupled with a commitment to continual innovation and stringent safety standards, positions U.S. Steel as a key contributor to industrial advancements globally.


Founded in: 1901

Headquarters: Pittsburgh, Pennsylvania, United States

CEO: Mr. David Boyd Burritt

Number of employees:  22,740 (as 31/12/22)

Market Cap: $10.80 (as of 01/01/24)

EV: $11.95B

LTM Revenue: $18.25B

LTM EBITDA: $2.15B

LTM EV/Revenue: 0.65x

LTM EV/EBITDA: 4.97x


Projections and Assumptions


Short-term consequences


US Steel was regarded as a paragon of US corporations since its founding by titans of industry like Andrew Carnegie, J.P. Morgan, and Charles Schwab, to name a few. The sale of this historic US firm to Japanese owners has and likely will continue to raise concern among politicians in the US. For example, both Republican Senator JD Vance (of Ohio) and Democratic Senator John Fetterman (of Pennsylvania) voiced strong opposition to any foreign sale of US Steel in the weeks leading up to the deal. This deal may negatively impact the reputation of US Steel within the US.

This acquisition will likely provide immediate value for US Steel’s investors. Specifically, the $55 USD per share sale agreement is a 40% premium over the closing stock price on December 15, 2023, and the price jumped 26% to $49.59 after the sale was announced. 


Conversely, the hefty price tag on this deal will foster some uncertainty amongst Nippon Steel investors. This is reflected in the stock price for Nippon Steel as it fell from $7.60 per share on December 15, 2023 to $7.27 on December 18, 2023, however, the stock price steadily increased and surpassed $7.60 by December 28, 2023. Cleveland-Cliffs and ArcelorMittal saw stock price increases of 10% and 5%, respectively, as investors seemed relieved by the refusal to pay an inflated price for US Steel.


Nippon Steel will instantaneously add 20 million tonnes of total annual crude steel capacity to its current 66 million tonnes of capacity (which ranks fourth in the world among steel producers). Furthermore, Nippon Steel will have access to more US-based production regions and a plethora of infrastructure and intellectual property to further its growth strategy.


Long-term Upsides


Despite scrutiny from both lawmakers and senators in the United States, many still believe that Nippon Steel’s acquisition of US Steel can and will be wholly beneficial in the long-run. Aligned commitments to sustainability, with the goal to decarbonise by 2050 being shared by both firms, confirms that there will be a synergistic approach to the innovation and creation of new sustainable technologies that will have external benefits, not just to the wider market but the wider population as a whole. The deal also allows Nippon Steel to manoeuvre further into the US steel market, one where Nippon Steel’s presence can plug a noticeable disparity between the demand and domestic supply of steel over time, allowing for considerable revenue growth.


The acquisition also marks a small step towards a more competitive global steel industry. In a market that is currently dominated by China, with approximately 54% of all annual global steel production being produced by Chinese steel manufacturers. This acquisition could be a leading indicator of a more even distribution in market share within global steel in the future, implications of which could result in less future regulation and conditions that encourage further innovation and reinvestment. This will propel movement towards a more sustainable world in the wider steel market, not just within Nippon Steel.


Risks and Uncertainties


There are a few potential risks arising from the cross-border nature of this deal. Firstly, geographical and cultural disparities between the US and Japan may result in difficulties with integration, potentially affecting synergies between Nippon Steel and US Steel to innovate new sustainable technologies.  

 

Furthermore, there are potential risks surrounding US national security, with the Biden administration emphasising the need for “serious scrutiny” of the deal. Concerns over the US’ ability to maintain regulation over the company, differing corporate governance rules between Japan and the US, as well as the steel industry’s significance in underpinning supply chains within areas such as construction, automakers, and the defence sector, may lead to the deal being blocked by the US.  

 

With regards to the steel industry, overall falling demand in the global economy has led Chinese steel producers to have an oversupply of steel, which they are offloading into global markets. In 2023 China’s steel exports rose by 35%, a trend likely to continue into 2024. Especially given the effort required to integrate such a large company into their business, Nippon Steel may struggle to compete. 

 

Finally, going into 2024, macroeconomic uncertainty surrounding inflation, geopolitical tensions within the Middle East and Russia, as well as elections in major economies including the US, will create potential risks and volatility within the market. This unstable backdrop must be carefully managed to ensure the success of the deal.  


“We believe this transaction is in the best interests of our two companies, providing strong, immediate value for U. S. Steel shareholders while enhancing NSC’s long-term growth prospects. We have a strong balance sheet and are confident in our ability to unlock the potential of bringing together NSC and U. S. Steel through advancement in steelmaking, creating long-term value for our companies’ stakeholders, including our customers, employees, suppliers, communities, and shareholders.” - Takahiro Mori, Executive Vice President (NSC)

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