Great Deal! Japan's Nippon Steel to Buy U.S. Steel in US$14.9 Billion

ACQUISITION - TOKYO - Japan's Nippon Steel 5401.T clinched a deal on Monday to buy U.S. Steel X.N for $14.9 billion in cash, prevailing in an auction for the 122-year-old iconic steelmaker over rivals including Cleveland-Cliffs CLF.N and ArcelorMittal MT.LU.

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

Cleveland-Cliffs' move prompted U.S. Steel to launch a sale process. In a meeting of its board of directors on Sunday, U.S. Steel deemed Nippon's offer superior to a sale to Cleveland-Cliffs, which had raised its bid in the high $40-per-share range, the sources said.

The outcome is also a blow for ArcelorMittal, which Reuters has reported also pursued U.S. Steel. Nippon and ArcelorMittal own a plant in Alabama that produces steel sheet products by processing semi-finished products, or slabs, procured from local and overseas suppliers. They are also investing about $1 billion in an electric arc furnace.

The deal will help Nippon, the world's fourth largest steel maker, move toward 100 million tonnes of global crude steel capacity, while significantly expanding its production in the United States, where steel prices are expected to rise as automakers ramp up production following their recent deals with labor unions to end strikes.

Nippon did not give any projections of the synergies that will arise from the deal that justify the price it will pay. It said the synergies will come from pooling advanced production technology and know-how in product development, operations, energy savings, and recycling.

"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.

U.S. Steel shares traded up 28% at $50.50 in pre-market trading in New York on Monday.

Nippon said that all of U.S. Steel's commitments with its employees, including all collective bargaining agreements in place with its union, will be honored.

The company's executive vice president, Takahiro Mori, told Reuters in an interview that the company had operated in the United States for 40 years and was confident the transaction would be completed.

"Standard Steel and Wheeling Nippon Steel that we own are unionized companies in the United States, we have a good history of working with unions. We see no regulatory or antitrust issues with the deal," Mori said.

Nippon's joint venture with Arcelor is not unionized.

Pittsburgh-based U.S. Steel's shares had suffered after several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to add a maker of steel used by the automobile industry.

U.S. Steel also supplies to the renewable energy industry. It stands to benefit from the Inflation Reduction Act (IRA), which provides tax credits and other incentives for such projects, something that attracted suitors.

The transaction with Nippon is expected to close in the second or third quarter of 2024, subject to approvals, U.S. Steel said. 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 transaction.

Citi is a financial adviser to Nippon, while Barclays Capital, Goldman Sachs, and Evercore are the financial advisers to U. S. Steel.