The United States Steel Corporation saw its shares surge on Monday following the company's announcement of its acquisition by Nippon Steel.
Japan's leading steel manufacturer is set to purchase U.S. Steel at $55 per share in cash, presenting a substantial 40% premium to the stock's value on December 15, in addition to assuming debt, resulting in an overall enterprise value of $14.9 billion.
The offer also stands at a remarkable 50% higher than the mid-August cash and stock bid from Cleveland-Cliffs, which played a role in triggering U.S. Steel's strategic review process. Cleveland-Cliffs proposed $17.50 per share and 1.023 shares of its stock for every U.S. Steel share, valuing the deal at approximately $36.63 based on recent share prices.
U.S. Steel stocks surged by around 26% in Monday's trading, closing at $49.63, while Nippon Steel shares experienced a 1.1% decline in Tokyo.
As of Thursday, U.S. Steel shares maintained those gains, and were up 23% over a 5-day period. Nippon Steel stock dipped slightly, falling by 0.41% over the same period. Nippon is a constituent of Japan’s Nikkei 225 index, which was up 1.16% on the week at the time of writing.
Pending regulatory approval, the deal is anticipated to conclude in the second or third quarter of the following year. Notably, the agreement includes a commitment from Nippon Steel to maintain U.S. Steel’s relationships with the United Steelworkers union.
U.S. Steel CEO David B. Burritt said in a statement:
“NSC has a proven track record of acquiring, operating, and investing in steel mill facilities globally—and we are confident that, like our strategy, this combination is truly Best for All.”
The proposed combination is likely to face opposition, particularly from the United Steelworkers, the representative body for numerous U.S. Steel employees. The organization has already expressed its dissatisfaction with the deal. Union President David McCall in a news release:
“To say we’re disappointed in the announced deal between U.S. Steel and Nippon is an understatement, as it demonstrates the same greedy, shortsighted attitude that has guided U.S. Steel for far too long. Neither U.S. Steel nor Nippon reached out to our union regarding the deal, which is in itself a violation of our partnership agreement that requires U.S. Steel to notify us of a change in control or business conditions.”
This isn't the first time Japanese steelmakers have been with involved with American steel companies, or with U.S. Steel. For instance, NKK Corp. acquired a large stake in National Steel during the 1980s. National Steel subsequently filed for bankruptcy in 2002, and U.S. Steel acquired its assets for about $1 billion, incorporating them into its operations in the Midwest.
Nippon Steel, positioned as a top-five global steel producer, is approximately three to four times larger than U.S. Steel in terms of both revenue and production volume. Once the largest steelmaker in the world, U.S. Steel, established in 1901 by Andrew Carnegie and John Pierpont Morgan, has stood as an iconic symbol of American industry. In August, the company announced its exploration of strategic alternatives after receiving multiple unsolicited proposals.
The Nippon deal values U.S. Steel stock at approximately $12.3 billion, with the entire company, including debt, valued at about $14.5 billion. This equates to roughly 6.7 times the average earnings before interest, taxes, depreciation, and amortization (EBITDA) generated in recent years, a standard metric for evaluating commodity-oriented businesses with earnings that fluctuate in tandem with commodity prices.
Comparatively, Cleveland-Cliffs and Nucor both trade at around 7.5 times their average EBITDA over the past few years.
At the time of writing on Thursday, U.S. Steel shares were trading at $48 in premarket on the NYSE and were up 23.06% on the week. The company’s stock has soared by close to 91%, far exceeding the growth of the benchmark S&P 500 index and the Dow Jones Industrial Average, which rose by 22.4% and 11.9% year-to-date respectively.
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