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 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.”