Nippon Steel set to buy a US giant

Japan’s Nippon Steel has announced plans to purchase America’s third-largest steelmaker - US Steel - for $14.9B.

US Steel isn’t any old company. 

It’s an iconic American brand, founded in 1901 out of Andrew Carnegie’s steel empire, with help from two legendary financiers, JP Morgan and Charles Schwab. It went on to become the world’s largest company, the first-ever valued at over $1B, and it made Carnegie the world’s richest person. 

And steel isn’t any old product. It’s used for:

• 🚀 Military platforms and weapons systems

• 🏗️ Buildings and critical infrastructure

• 🚄 Ships and trains, and 

• ⚡ Things like EVs and turbines for the energy transition.

That makes it a vivid symbol of a country’s industrial base, and a source of national prestige. US Steel even got a reference in Godfather Part II!

But the company isn’t what it used to be. At its peak last century, it was the world’s largest steelmaker, employing more than 300,000 workers and producing more than 35 million tonnes a year. These days it’s ranked 27th, hiring 15,000 workers and producing 14 million tonnes.

What happened? It’s a mix of global, domestic, and internal factors.

Globally, the steel story is a China story; the country now produces more than half the world’s steel, with subsidies that keep prices lower than anywhere else. These low prices, plus higher global energy costs, make steel a tough industry.

Domestically in the US, successive governments have deployed tariffs and other policies to help the steel industry and drive local demand. But other competitors in the US have done better at seizing this opportunity, overtaking US Steel.

Internally, US Steel has tried to catch up, spending billions on reorganisation, diversification, acquisition, and modernisation. But it’s taken on high debt in the process, and its modernisation has still been far too slow.

So after fending off buyers and rumoured buyers for decades, Nippon has now made an offer US Steel can’t refuse, at a 40% premium above its share price.

Why?

Adding US Steel’s mills to its portfolio will make Nippon the world’s second-largest producer. But probably more importantly, it’ll grant Nippon better access to the massive US market, which is still mostly serviced by US-made steel.

Nippon says US Steel shareholders will vote on the deal in March and the purchase will close later next year, assuming it clears US regulatory hurdles.