Nippon Steel buys U.S. Steel for $14B

U.S. Steel, the Pittsburgh steel producer that played a key role in the nation’s industrialization, is being acquired by Nippon Steel in an all-cash deal valued at approximately $14.1 billion.

The transaction is worth about $14.9 billion when including the assumption of debt. The combined company will be among the top three steel-producing companies in the world, according to 2022 figures from the World Steel Association.

The price tag for U.S. Steel is nearly double what was offered just four months ago by rival Cleveland Cliffs. U.S. Steel, which rejected that offer, confirmed the offering price from Nippon early on Dec. 18.

That tie-up would have created one of the top four outside of China, which dominates global steel production. U.S. Steel executives were asked about a potential pushback from U.S. regulators over security concerns on Deec. 18.

“This is going to increase competition here in the United States with a great ally to the United States,” answered U.S. Steel CEO David Burritt. “It’s a great fit and we do not see that as a high level risk factor. We’d say low level of risk.”

U.S. Steel will keep its name and its headquarters in Pittsburgh, where it was founded in 1901 by J.P. Morgan, Andrew Carnegie. It will become a subsidiary of Nippon.

China and Chinese companies have come to dominate global steel production. Of the nearly 2 billion metric tons of steel produced annually across the globe, about 54% comes from China, according to the World Steel Association.

China’s Baowu Group, a state-owned iron company based in Shanghai, churned out nearly 120 million metric tons of steel in 2021. The combined Nippon and U.S. Steel companies will produce less than 90 million metric tons of steel combined, with most of that coming from Nippon.

In 2022, U.S. Steel produced about 14.5 million tons.

The U.S. currently ranks No. 4 behind China, India and Japan, and the blast furnace steel plants operated by U.S. Steel are among the more costly to operate, compared with more modern facilities that melt down scrap using arc furnaces.

But U.S. Steel plants with blast furnaces remain integral to U.S. manufacturing, particularly automakers.

Earlier this year U.S. Steel idled one of its blast furnaces in Granite City, Illinois, in anticipation of a lower demand for steel, citing a strike against the big three automakers in Detroit.

Soaring prices have fueled consolidation in the steel industry this decade. Steel prices more than quadrupled near the start of the pandemic to near $2,000 per metric ton by the summer of 2021 as supply chains experienced gridlock, a symptom of surging demand for goods and the lack of anticipation of that demand.

Nippon, which will pay $55 per share for U.S. Steel, said on Dec. 18 that the deal will bolster its manufacturing and technology capabilities. It will also expand Nippon’s production in the U.S. and add to its positions in Japan, India and the ASEAN region.

Nippon said the acquisition is anticipated to bring its total annual crude steel capacity to 86 million tons and help it capitalize on growing demand for high-grade steel, automotive and electrical steel.

“The transaction builds on our presence in the United States and we are committed to honoring all of U. S. Steel’s existing union contracts,” Nippon President Eiji Hashimoto said in a prepared statement.

The acquisition has been approved by the boards of both companies and is targeted to close in the second or third quarter of 2024. It still needs approval from U.S. Steel shareholders.