Nippon Steel is acquiring U.S. Steel, a Pittsburgh steel manufacturer that played a significant part in the nation’s industrialization, in an all-cash deal worth around $14.1 billion.

The transaction is valued at around $14.9 billion when debt is assumed. According to World Steel Association projections for 2022, the combined company will be among the top three steel-producing companies in the world.

The price for U.S. Steel is roughly double what Cleveland Cliffs offered just four months ago. U.S. Steel, which turned down that bid, verified Nippon’s offered price early Monday.

That merger would have resulted in one of the top four producers outside China, which dominates global output. On Monday, executives from U.S. Steel were quizzed about a potential backlash from U.S. regulators over security concerns.

Storied US Steel To Be Acquired For More Than $14 Billion By Nippon Steel

“This is going to increase competition here in the United States with a great ally of the United States,” U.S. Steel CEO David Burritt responded. “It’s a great fit, and we don’t see it as a high-risk factor.” The risk is modest.

The company’s name and headquarters will remain in Pittsburgh, which was founded in 1901 by J.P. Morgan and Andrew Carnegie. It will become a Nippon subsidiary.

China and Chinese firms have dominated world production. According to the World Steel Association, China produces over 54% of the nearly 2 billion metric tons of steel globally annually.

In 2021, China’s Baowu Group, a state-owned iron business in Shanghai, will produce almost 120 million metric tons of steel. The United Nippon and U.S. firms will manufacture less than 90 million metric tons of steel, with Nippon producing most of that.

2022 the United States Steel Corporation will produce approximately 14.5 million tons.

The United States currently ranks fourth, trailing China, India, and Japan, and U.S. Steel’s blast furnace steel factories are among the most expensive to operate compared to more modern facilities that melt trash using arc furnaces.

However, U.S. steel factories with blast furnaces remain vital to U.S. manufacturing, particularly cars.

In anticipation of weaker steel demand, U.S. Steel idled one of its blast furnaces in Granite City, Illinois, earlier this year, citing a Detroit automakers’ strike.

Rising costs have pushed the sector’s consolidation this decade. Steel prices nearly doubled around the onset of the epidemic, reaching nearly $2,000 per metric ton by the summer of 2021 as supply networks became clogged, a symptom of growing demand for products and a failure to anticipate that demand.

On Monday, Nippon, which will pay $55 per share for U.S. Steel, stated that the acquisition will strengthen its manufacturing and technical capabilities. It will also increase Nippon’s production in the United States and strengthen its standing in Japan, India, and the ASEAN area.

Nippon stated that the acquisition will increase its total annual crude steel capacity to 86 million tons, allowing it to capitalize on rising demand for high-grade, automotive, and electrical steel.

“We are committed to honoring all of U.S. Steel’s existing union contracts,” Nippon President Eiji Hashimoto said in a prepared statement.

U.S. Steel CEO David Burritt said the transaction benefits the U.S. by “ensuring a competitive, domestic steel industry while strengthening our global presence.” During a conference call on Monday, he stated that the business will continue to run its mining and steel activities in the United States for domestic customers.

Nippon announced on Monday that it will uphold all collective bargaining agreements with the United Steelworkers and other employees and is dedicated to maintaining its connection with workers. Nippon has been present in the United States for nearly four decades, beginning with a joint venture with Wheeling-Pittsburgh in 1984, which later became a wholly-owned subsidiary.

The United Steelworkers International, on the other hand, instantly opposed the agreement.

The union “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,” said David McCall, president of United Steelworkers.

McCall stated that U.S. Steel and Nippon Steel did not contact the union about the agreement and that the union intends to use all of the provisions in its agreements to defend jobs.

“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,” he said.

Since its inception in the early twentieth century, U.S. Steel has been a symbol of industrialization, and the domestic steel industry reigned globally before Japan and, later China became the main steelmakers over the last 40 years.

The corporation survived the Great Depression and contributed significantly to the United States’ efforts in World Wars I and II, delivering hundreds of millions of tons of steel for planes, ships, tanks, and other military equipment and steel for automobiles and appliances.

During the late 1970s and early 1980s, U.S. Steel curtailed output and sold off many other operations due to an energy crisis and successive recessions. With oversupply and a flood of lower-cost steel imports pulling down prices into the new century, the corporation reorganized in 2001 and spun off its oil division, which formed Marathon Oil Corp.

Storied US Steel To Be Acquired For More Than $14 Billion By Nippon Steel

The 64-story U.S. Steel Tower still dominates the Pittsburgh skyline, although U.S. Steel is no longer its primary tenant. That is UPMC, a local health system whose name is now emblazoned on the top of the tower.

The boards of both companies have approved the deal, and it should close in the second or third quarter of 2024. It still needs to be approved by U.S. Steel shareholders.

United States Steel Corp.’s stock jumped more than 27% on Monday.

SOURCE – (AP)