Japan’s Nippon Steel acquires US Steel for $14.9 billion – Reuters

© Reuters. FILE PHOTO: The New Nippon Steel logo is displayed at the headquarters in Tokyo, Japan, March 18, 2019. Photo taken on March 18, 2019. REUTERS/Yuka Obayashi/file photo

Written by Shivansh Tiwary and Anirban Sen

(Reuters) – Japan’s Nippon Steel signed a deal on Monday to acquire U.S. Steel for $14.9 billion in cash, ahead of Cleveland-Cliffs (NYSE:) and ArcelorMittal (NYSE: ) in an auction.

The transaction price of $55 per share represents a whopping 142% premium compared to Aug. 11, the last day of trading before Cleveland-Cliffs announced a $35 per share cash and stock bid for U.S. Steel.

Cleveland-Cliffs’ move prompted U.S. Steel to begin a sale process. At a board meeting Sunday, U.S. Steel determined Nippon’s offer was superior to a sale to Cleveland-Cliffs, which raised its bid to as high as $40 per share, sources said.

ArcelorMittal also pursued U.S. Steel, Reuters reported. Nippon and ArcelorMittal own plants in Alabama that produce sheet steel products by processing semi-finished products or slabs sourced from local and foreign suppliers. They are also investing about $1 billion in electric furnaces.

The acquisition of U.S. Steel will help Nippon, the world’s fourth-largest steelmaker, advance toward 100 million tons of global crude steel production and significantly expand production in the United States. An agreement was recently reached with the labor union to end the strike.

Nippon did not provide any estimate as to the value of the synergies that would arise from the transaction that would justify the price it would pay. It was revealed that synergies will be created by integrating advanced production technologies and know-how in the areas of product development, operation, energy conservation and recycling.

Nippon is paying the equivalent of 7.3 times U.S. Steel’s 12-month earnings before interest, taxes, depreciation and amortization, LSEG data shows. The median valuation for the steel industry is 7x, and some analysts say U.S. Steel is worth less, given that it acquired the Big River, Arkansas steel mill for $774 million in 2021 but is not yet profitable.

“We think Nippon is paying too much for these assets. This is not a technology space. This is still a cyclical steel industry,” said Gordon Johnson, an analyst at GLJ Research.

U.S. Steel shares rose 27% to $49.92 on Monday after the deal was announced. Nippon Steel shares closed out of trading in Tokyo before the company disclosed the deal.

Cliffs shares surged 10% to $20.54 on the New York Stock Exchange. That’s because shareholders cheered the company’s decision to stop investing in U.S. Steel. Cliffs said it would continue “aggressive share buybacks” under a previously approved program.

ArcelorMittal shares also rose 5% to 26.23 euros in Amsterdam following a similar investor rescue.

the union is against

Nippon said all of U.S. Steel’s commitments to its employees, including all collective bargaining agreements with unions, will be honored.

Despite these assurances, the United Steelworkers union, which had backed heavily unionized Cliffs as a buyer, said it opposed the sale to Nippon because it did not believe the labor agreement would be upheld.

“Our union plans to implement all measures we agreed to with U.S. Steel to protect the good, family-supporting jobs we negotiated, no matter what happens next,” the United Steelworkers said. A spokeswoman did not respond to a request for comment on details of the union’s plans.

Nippon Vice President Takahiro Mori told Reuters the company has operated in the U.S. for 40 years and was confident the deal would be completed.

“The Standard Steel and Wheeling Nippon Steel that we own are unionized companies in the United States,” Mori said. “We have a good history of working with labor unions. We are confident that there will be no regulatory or antitrust issues in this transaction.” “We didn’t find it,” Mori said.

The joint venture between Nippon and Arcelor has no labor union.

Shares of Pittsburgh-based U.S. Steel have suffered after several quarters of declining sales and profits, making it an attractive acquisition target for rivals looking to add to the maker of steel used in the auto industry.

U.S. Steel also supplies the renewable energy industry and has attracted the attention of suitors because it can benefit from the Inflation Reduction Act (IRA), which provides tax credits and other incentives for such projects.

The transaction with Nippon is expected to close in the second or third quarter of 2024, subject to regulatory approvals, according to U.S. Steel. The Committee on Foreign Investment in the United States, a U.S. panel that scrutinizes deals for potential national security risks, is expected to review the deal, but most Japanese acquirers complete their deals with few problems.

Citi is Nippon’s financial advisor and Barclays Capital, Goldman Sachs and Evercore are U.S. Steel’s financial advisors.