Nippon Steel Wins U.S. Steel Auction With Bid of Nearly $15 Billion

The four-month auction of U.S. Steel Corp. has yielded a surprise winner in Nippon Steel Corp., which has agreed to pay $14.1 billion in cash for the shares of Pittsburgh-based U.S. Steel.

The directors of Tokyo-based Nippon Steel have approved a plan to pay $55 per share for U.S. Steel, which is about 40% higher than where the stock closed Friday. It also is nearly 60% more than the $35-per-share offer made in late July by Cleveland-Cliffs Inc., a move that U.S. Steel’s leaders rejected and responded to by putting the historic manufacturer on the market.

When completed as planned by the middle of the next year, the deal will grow Nippon Steel’s production capacity by 20 million tons annually to about 86 million tons. Speaking on a conference call with analysts, Executive Vice President Takahiro Mori said his team’s goal is to grow that number to 100 million tons.

“U.S. Steel and NSC create a truly global steel company with combined capabilities and innovation capable of meeting our customers’ evolving needs,” U.S. Steel President and CEO David Burritt said in a statement. “Today’s announcement also benefits the United States—ensuring a competitive, domestic steel industry, while strengthening our presence globally.”

As part of the acquisition, which has a total value of $14.9 billion and is expected to close in the middle of 2024, Nippon Steel executives have committed to keeping U.S. Steel’s brand as well as the company’s corporate office in Pittsburgh. They also say they will honor U.S. Steel’s labor contract with the United Steelworkers Union, which was renewed in September of last year.

USW leaders don’t see the Nippon news in the same light as Burritt, however. In a statement, President David McCall—who had vocally backed Cleveland-Cliffs’ bid this summer—said it would be an understatement to say his team is disappointed in the outcome of U.S. Steel’s auction.

“We remained open throughout this process to working with U.S. Steel to keep this iconic American company domestically owned and operated, but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company,” McCall said. “Our union intends to exercise the full measure of our agreements to ensure that whatever happens next with U.S. Steel, we protect the good, family-sustaining jobs we bargained. We also will strongly urge government regulators to carefully scrutinize this acquisition and determine if the proposed transaction serves the national security interests of the United States and benefits workers.”

McCall also said U.S. Steel and Nippon Steel executives didn’t consult with the USW about the planned transaction, something he said violates the union’ partnership agreement with U.S. Steel. And while Nippon Steel leaders have committed to honoring the USW agreement, McCall said he doesn’t know if the company “has the capacity to live up to our existing contract,” which includes pension and retiree insurance pledges.

On the conference call, Mori said Nippon Steel already has more than 600 workers in the United States that are covered by USW contracts. The company first started doing business in the United States in 1986 via a joint venture in West Virginia and now also has operations in Alabama (via a JV with ArcelorMittal), Indiana, Kentucky, Pennsylvania and Washington state.

U.S. Steel stock not the only one to pop

Nippon Steel didn’t figure prominently among possible bidders named in several reports this fall. In addition to Cleveland-Cliffs, rumored to be seriously in the hunt were ArcelorMittal—which a few years ago sold its U.S. operations to Cliffs—as well as fellow U.S. players Nucor and Steel Dynamics and international players Stelco out of Canada and Techint from Argentina.

Reports said that most members of that group were looking to buy only a portion of U.S. Steel’s assets, which would make for a lengthier and more complicated process. That scenario appears to have factored into U.S. Steel directors’ decision: On his conference call with Mori, Burritt repeatedly pointed out the higher certainty of closing the Nippon Steel.

Shares of U.S. Steel (Ticker: X) were up more than 27% to about $50.10 in late-morning trading Dec. 18. Worth noting: Cliffs shares (Ticker: CLF) were up more than 10% on the news that it didn’t win the bidding and after Chairman, President and CEO Lourenco Goncalves said his team will now buy back more of the company’s stock.

“Even though U.S. Steel’s Board of Directors and CEO chose to go a different direction with a foreign buyer, their move validates our view that our sector remains undervalued by the broader market, and that a multiple re-rating for Cleveland-Cliffs is long overdue,” Goncalves said. “We congratulate U.S. Steel on their announcement and wish them luck in closing the transaction with Nippon Steel.”