In a historic move, Nippon Steel, the world's fourth-largest steel manufacturer, announced on Monday its plan to acquire U.S. Steel for $14.9 billion in cash, offering $55 per share. This acquisition marks the largest deal in Japanese corporate history.
The offer from Nippon Steel represents a 42% premium over the $35 per share bid in cash and stock proposed by Cleveland-Cliffs Inc. in August. Cleveland-Cliffs had initiated the pursuit of U.S. Steel four months ago. According to sources, Cleveland-Cliffs later raised their bid to $40 per share, but it still fell short of Nippon Steel's $55 per share, which was more favored by the board.
Other major steel manufacturers, including Nucor, the largest in the U.S., and ArcelorMittal from the Netherlands, had also shown interest in acquiring U.S. Steel.
The acquisition is expected to propel Nippon Steel towards its goal of a global crude steel capacity of 100 million tons and significantly expand its production in the United States. With recent agreements between automakers and unions ending strikes and increasing production, steel prices in the U.S. are anticipated to rise.
However, some analysts believe that Nippon Steel may have overpaid for U.S. Steel. According to LSEG data, the price paid by Nippon Steel is equivalent to 7.3 times the 12-month EBITDA of U.S. Steel, compared to the industry median of 7 times. Analysts note that U.S. Steel's acquisition of Big River Steel in Arkansas for $774 million in 2021 has yet to yield profitable returns, suggesting a lower value.
Gordon Johnson, an analyst at GLJ Research, expressed concerns to the media: "We believe Nippon Steel has overpaid for these assets. This is not the tech industry. It's still the cyclical steel industry."
Following the announcement, U.S. Steel's stock surged 26% to close at $49.59 on Monday.
Cleveland-Cliffs' shares also jumped 10%, as shareholders rejoiced over the failed acquisition. The company announced it would continue with "aggressive stock buybacks" as previously authorized.
ArcelorMittal's shares in Amsterdam rose by 5% to €26.28, with investors also feeling relieved.
U.S. Steel stated that the transaction with Nippon Steel is expected to be completed in the second or third quarter of 2024, pending regulatory approval.
Given the limited overlap between Nippon Steel and U.S. Steel, the deal is unlikely to attract significant antitrust scrutiny.
