Dec 19, 2023 - Business

U.S. Steel stock surges on acquisition by Nippon Steel

Data: FactSet; Chart: Axios Visuals

Shares of U.S. Steel surged on Monday after Japan-based Nippon Steel announced plans to purchase the once-iconic American producer in a deal valued at $14.9 billion, nearly double what U.S. rival Cleveland-Cliffs had offered for the company just four months ago.

By the numbers: The stock was in negative territory for the year until this past August when Cleveland-Cliffs made a splashy bid to merge — and it's now sitting on gains of nearly 100%.

Why it matters: Founded in 1901, U.S. Steel was a 20th century industrial giant, and remained the largest steelmaker in the country as recently as 2014.

  • Today U.S. Steel is the third largest steelmaker in the U.S., behind Nucor and Cleveland-Cliffs.

State of play: The U.S. market is a bright spot for the global steel industry — it's been somewhat sheltered from cheaper Chinese exports since 2018, when the Trump administration imposed 25% tariffs on Chinese steel imports on national security grounds.

  • The Biden administration left those tariffs in place.
  • The tariffs have contributed to what Fitch analysts recently described as the "exceptional profitability" of the U.S. market.

Between the lines: Nippon Steel is the world's fourth largest steel producer, and the acquisition will boost its presence in the U.S. market, where demand is growing amid post-pandemic re-shoring trends.

  • In a presentation on the deal, Nippon officials spotlighted demand related "energy and manufacturing industries [set] to return to the U.S."

What they're saying: U.S. Steel CEO David Burritt said on a call with analysts that the deal "is good for the United States and creates a more competitive market here with one of the United States' greatest allies."

  • The deal would preserve the current market structure, in which four large steelmakers dominate the U.S.
  • Cleveland-Cliffs' bid for U.S. Steel, on the other hand, would have consolidated the top four domestic producers into three, raising the risk that antitrust regulators would try to quash the deal.
  • U.S. Steel will retain its brand name under the new ownership.

Yes, but: The United Steelworkers (USW) union on Monday ripped U.S. Steel and Nippon for agreeing to a $15 billion deal without union approval, setting the stage for a fight with workers over the transaction.

  • The union previously said its contract with U.S. Steel requires any prospective buyer to agree to a new labor deal before a sale can be finalized.
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