Written by Louis Leonardi
On January 5th, 2024, Nippon Steel announced plans to acquire the U.S. Steel for approximately $14.9 Billion. The deal is an all-cash acquisition where Nippon Steel is paying off $0.8 Billion of debt valuing the deal at $14.1 Billion. Nippon Steel (OTCMKTS: NPSCY) agreed to acquire U.S. Steel (NYSE: X) for $55 a share, valuing each stock of U.S. Steel at a 40% premium (Chapman 1). The acquisition is still waiting to go through the Department of Justice.
Nippon Steel, Japan’s largest steelmaker, ranks 4th among all active steel producers worldwide (World Steel Association). Headquartered in Tokyo, The company operates in four business segments: Steelmaking and Steel Fabrication, Engineering and Construction, Chemicals and Materials, and System Solutions. Nippon provides steel to a number of industries in automotive, energy, infrastructure, and Consumer electronics. The company is looking to acquire U.S. Steel to consolidate in the industry and capture the U.S. market.
Nippon Steel views a potential acquisition of U.S. Steel as a valuable opportunity to consolidate in the Steel industry. As of 2022, top competitor Baowu Steel Group out of China has dominated the industry producing 13,184 tons of crude steel annually (Kaito, 4). Nippon Steel produced 4,437 tons of crude steel, and U.S. Steel produced 1,449 tons of crude steel back in 2022 (Kaito 4). Acquiring the annual production of the U.S. Steel would springboard Nippon’s production to 2nd among all Steel companies. In addition to Nippon gaining global market share, worldwide demand for steel has continued to increase on a year over year basis. In 2025, the World Steel Organization expects the world steel demand to increase by 1.2%, demonstrating a demand increase of at least 1% since 2020 (World Steel Organization). Key drivers of this demand include India, MENA (Middle East & North Africa), ASEAN (Association of Southeast Asia), parts of Europe, and the United States. Through gaining larger market share of the steel industry and increasing demand for steel, Nippon views this acquisition as an integral play in expanding their company.
Another reason Nippon Steel wants to complete this deal is to expand their outreach globally into the United States. In 2021, Nippon Steel announced a reachable goal to become “the best steelmaker with world leading capabilities” by promoting a global strategy to deepen and expand business overseas (Kaito 6). The acquisition of U.S. Steel allows Nippon to take a step in the right direction of expanding their business globally, into the U.S. market. The United States government has made it known they are in heavy favor of a stable domestic steel production system, that U.S. Steel has the opportunity to take advantage of. Increased U.S. demand for steel continues to grow because of fiscal spending under the Infrastructure Investment and Job Act, creating incentives for U.S. corporations to purchase domestically produced steel. Also, the U.S. has a deteriorating history placing tariff regulations on Chinese steel imports, incentivizing corporations to once again turn to domestic steel production. Nippon Steel wants to take advantage of increasing demand for steel and expanding into the U.S. market.
On the other side of the deal, the United States Steel Corporation, U.S. Steel, is a primary steel producer in the United States. Headquartered in Philadelphia, the company supplies companies in the automotive, construction, appliance, energy, containers, and packaging industries. Since 1970, the company’s competitiveness has declined, and as a result, U.S. Steel has repeatedly restructured and replaced its assets (Kaito 2). In August of 2023, the company announced it was considering a possible sale to a third party. In December of 2023, U.S. Steel announced its plans to be acquired by Nippon Steel for $14.9 Billion. U.S. Steel agreed to Nippon’s terms for a number of reasons.
On April 12th, U.S. Steel shareholders overwhelmingly voted to approve the acquisition, valuing each share at $55 compared to the firm’s current share price of $39.50. 98% of shareholders who voted demonstrated Nippon’s clear reason being financial gains. In addition to financial incentives, Nippon Steel has agreed to protect the jobs of current U.S. Steel employees and to keep the company in Pittsburgh. Nippon announced it wants U.S. Steel to continue running its operations in the U.S. Overall, U.S. Steel believes “Nippon Steel will enhance the superiority of the U.S. and strengthen American supply chains” (Litvak and Robinson-Johnson, 2). Overall, U.S. Steel supports the acquisition of their company due to financial and management reasons.
Although U.S. Steel supports the completion of the deal, there are still multiple loopholes this acquisition still needs to go through. Nippon Steel still needs to reach agreements with the U.S. Steel’s labor union. If Nippon fails to do this, there will be no deal. The deal will also be under the review of U.S. regulators such as the Department of Justice. The government may view this deal as contradictory to the steel industry by lowering competition in the space. Even though Japan is a U.S. ally, this deal’s security risks will be closely examined prior to the acquisition’s approval. In addition to these roadblocks, Nippon Steel will have to endure intense political debate spearheaded by presidential candidates Donald Trump and Joe Biden, who both advocate against the acquisition’s completion.
In the upcoming months, it will be interesting to see whether or not the government regulators block this deal. Both Nippon Steel and U.S. Steel have understandable incentives to go through with this acquisition. For Nippon Steel, the acquisition of U.S. Steel would increase the company’s global footprint and market share in the steel industry. For the U.S. Steel, financial incentives and a promising outlook for Nippon’s management of the company are leading factors in their favoritism of the deal. This is a monumental acquisition that has the ability to increase Japan’s footprint in the United States while strongly affecting the steel industry.
References
Chapman, M. (2023, December 18). Storied US Steel to be acquired for more than $14 billion by Nippon Steel. AP News.
https://apnews.com/article/us-steel-nippon-steel-acquired-industrialization-1a174c35975efd3ee0f0f9172a3bd6b
Investors company information. (n.d.). United States Steel. https://investors.ussteel.com/company-information
Kaito, H. (2024, January 16). Why does Nippon Steel want to acquire U.S. Steel? Japan
Forward.
https://japan-forward.com/why-does-nippon-steel-want-to-acquire -ussteel/#google_vignette
Nippon steel corporate profile. (n.d.). Nippon Steel. https://www.nipponsteel.com/en/company/whoweare/
Robinson-Johnson, E., & Litvak, A. (2024, April 13). U.S. Steelshareholders approve sale to Japan’s Nippon Steel. Post-gazette. https://www.post-gazette.com/business/powersource/2024/04/12/us-steel-nippon-sharehol
der-vote-sale/stories/202404120091
Top steel producing companies 2022/2021. (2022, January 1). World Steel Association.
https://worldsteel.org/data/top-producers/