U.S. Steel released a statement on December 18, 2023, that announced a developing deal for Nippon Steel (a Japanese company - ranked as the 4th top global steelmaker by Reuters) to acquire the Pennsylvanian steel producer for $14.9 billion (a 142% premium). U.S. Steel has been operating since 1901, formed by J.P. Morgan, who financed the merging of Carnegie, Elbert H., and William Henry steel companies to make U.S. Steel. The acquisition has prompted discussions on national security risks, labor union relations, and industry growth.
Favorable outlooks on the deal stem from the fact that U.S. Steel has been in a steady decline. In 2023, U.S. Steel’s net income declined by 66% compared to last year, going from 2022’s income of $2.5 billion to $1.15 billion. Even though the company is a considerable supplier domestically, its production methods have not modernized and produce materials at a much higher cost than modernized competitors. This dying company is prime for acquisition, but its scale makes the prospect of other domestic companies purchasing it daunting. Nippon had placed its bid for the supplier in an auction between other competitors, such as Cleveland-Cliffs (America), Nucor (America), and ArcelorMittal (Luxembourg). Cleveland-Cliffs had given what they believed to be a competitive offer before the auction of $7.1 billion but was considerably below Nippon’s auction bid.
Pro-deal views hope having Nippon run U.S. Steel would provide fresh ingenuity into the domestic market. Nippon has stated it would like to capitalize on the electric vehicle production boom in America. With materials streamlined more efficiently, it’s possible to see steel-related goods become more affordable. Additionally, Japan has been a close economic and military ally (America has three air bases in Japan). Not to mention, Nippon already has a presence in America with their joint venture called “AM/NS Calvet” which they created in Alabama with ArcelorMittal. U.S. Steel would expand its position in America considerably.
Anti-deal views highlight the importance of maintaining national security, which is a risk between allies even when relations are healthy. The concern is that there’s no telling what a rushed “globalization” of a major American domestic supplier would do. The United Steelworkers union (these workers make up the majority of employees at U.S. Steel) is nervous about the deal. U.S. Steel had not informed them of the sale, which they claim is a breach of contract. The union claims U.S. Steel agreed to notify them of any “change of control or business conditions,” without doing so, they believe there are grounds to halt the sale. Nippon Steel has stated that it would honor any contracts signed by U.S. Steel, but as the Japanese company has not met with the union, they are unsure how understanding the company is of the union terms. Bi-partisan support has been conjured up in Washington to try and stop the deal, calling for the “Committee on Foreign Investment in the United States” (CFIUS) to review the acquisition for compliance and potentially request a block. It is unclear if Biden will block the deal to rally support in Pennsylvania for his upcoming election campaign.
The acquisition is expected to be finalized in October of this year.
Commentaires