Japan’s Nippon Steel, the world’s fourth-largest steelmaker, announced Monday (Dec. 18) that it is acquiring US Steel for $14.9 billion in cash.
The deal to buy the 122-year-old American business shows just how keen a buyer Nippon Steel is. The company paid a whopping 142% premium to US Steel’s share price on its last trading day in August, when rival Cleveland-Cliffs made an offer of $7.3 billion– barely half the final price tag.
Shares of US Steel rose on the news, while Nippon’s fell as much as 6.1% in Tokyo on Tuesday. But Nippon is unaffected: Its president, Eiji Hashimoto, said he “doesn’t care about short-term stock movements.”
So what’s driving Nippon Steel’s big commitment?
Nippon Steel’s global ambitions
The main reason is Nippon’s ambition to significantly expand its international presence.
“This acquisition is in line with Nippon Steel’s global strategy,” the company said in a 38-page document (pdf) published on Monday detailing its purchase of US Steel.
Nippon is focusing its expansion efforts on three regions: India, where strong demand growth is expected; its home market in Asia; and the US, the world’s largest market for high-grade steel. Both New Delhi’s “Make in India” policy and Washington’s efforts – strengthened by the Inflation Reduction Act — on to bring back manufacturing to the US is also expected to drive demand for Nippon Steel’s products and technologies.
Relatively cheap energy in the U.S. will further encourage manufacturers to move back there, which in turn will drive demand for steel, Nippon noted. In addition, the US has low-cost iron ore mines with abundant reserves.
Meanwhile, the US Steel acquisition pushes Nippon closer to its goal of achieving 100 million metric tons of scrap steel production per year. US Steel’s annual sharp output of 20 metric tons immediately increases Nippon’s annual global production capacity to 86 million metric tons. Nippon aims to produce 60% of its steel outside of Japan.
