Updated: Nippon Steel to acquire US Steel for $14.9B

U.S. Steel ended months of speculation regarding its sale by announcing Dec. 18 that Nippon Steel Corp. (NSC), headquartered in Tokyo, will acquire the company in an all-cash transaction of $55 per share, representing an equity value of approximately $14.1 billion, plus the assumption of debt, for a total enterprise value of $14.9 billion. The transaction was approved unanimously by the boards of directors of NSC and U.S. Steel.

The $55-per-share purchase price represents a 40 percent premium to U.S. Steel’s closing stock price as of Dec. 15 and was more than the $35-per-share cash-and-stock bid Cleveland-Cliffs made in August.

Following the transaction, which is expected to close in the second or third quarter of 2024, U.S. Steel will retain its name, brand and headquarters in Pittsburgh. The transaction is subject to approval by U.S. Steel’s shareholders, receipt of customary regulatory approvals and other customary closing conditions.

NSC will fund the transaction through proceeds mainly from borrowings from certain Japanese banks and already secured financing commitments.

In mid-August, Cleveland-Cliffs Inc. announced its intention to make a bid to acquire U.S. Steel in a move that would fully consolidate blast furnace/basic oxygen furnace (BOF) steelmaking capacity in the U.S. In late August, the board of U.S. Steel announced it was undertaking a strategic alternatives process to consider an undisclosed number of statements of interest from outside companies.

A few weeks later, U.S. Steel and Cleveland-Cliffs reportedly had agreed on confidentiality terms that were acceptable to both companies. Other bidders emerged, including Pennsylvania-based steel service center Esmark, which quickly dropped out of the bidding. Subsequent unconfirmed media reports identified potential bidders that included Luxembourg-based ArcelorMittal and Canada-based Stelco Holdings, which at one time was a subsidiary of U.S. Steel.

The Alliance for Automotive Innovation (AAI), a Washington-based trade group with passenger vehicle producers and technology sector suppliers as its members, sent a letter to two U.S. senators and two representatives with antitrust responsibilities expressing concern about the Cleveland-Cliffs bid. However, Cleveland-Cliffs said it had the support of the United Steelworkers.

In response to the news of the pending sale, Cliffs Chairman, President and CEO Lourenco Goncalves issued a statement that reads in part: “We identified U.S. Steel as an extremely undervalued company with significant synergy potential when combined with Cleveland-Cliffs, creating a union-friendly American champion among the top-10 steelmakers in the world. 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 rerating for Cleveland-Cliffs is long overdue. We congratulate U.S. Steel on their announcement and wish them luck in closing the transaction with Nippon Steel.”

In a news release announcing the NSC transaction, U.S. Steel says the purchase will enhance NSC's world-leading manufacturing and technology capabilities and enable it to expand the geographic areas in which it can better serve its stakeholders. The transaction will further diversify NSC’s global footprint by significantly expanding its current production in the United States, adding to its primary geographies of Japan, ASEAN and India.

Following the acquisition, NSC’s expected total annual crude steel capacity will reach 86 million metric tons, accelerating its progress toward its strategic goal of 100 million metric tons of global crude steel capacity annually by expanding globally with the addition of an integrated production framework in “districts and areas where demand is promisingly expected to grow” and in “sectors in which our technologies and products are appreciated,” according to the company.

“We are excited that this transaction brings together two companies with world-leading technologies and manufacturing capabilities, demonstrating our mission to serve customers worldwide, as well as our commitment to building a more environmentally friendly society through the decarbonization of steel,” NSC President Eiji Hashimoto says. “NSC has long admired U.S. Steel with deep respect for its advanced technologies, rich history and talented workforce, and we believe we can jointly take on the challenge of raising our aspirations to even greater heights. The transaction builds on our presence in the United States, and we are committed to honoring all of U.S. Steel’s existing union contracts. We look forward to collaborating closely with the U.S. Steel team to bring together the best of our companies and move forward together as the ‘Best Steelmaker with World-Leading Capabilities.’”

NSC has U.S. operations in Burnham, Pennsylvania, operating as Standard Steel LLC; Seymour, Indiana, operating as Nippon Steel Pipe America Inc.; Georgetown, Kentucky, operating as International Crankshaft Inc.; Calvert, Alabama, operating as AM/NS Calvert LLC; South Bend, Indiana, operating as Suzuki Garphyttan Corp.; Shelbyville, Indiana, operating as Indiana Precision Forge LLC; Follansbee, West Virginia, operating as Wheeling-Nippon Steel Inc.; and Kalama, Washington, operating at Steelscape.

“We believe this transaction is in the best interests of our two companies, providing strong, immediate value for U. S. Steel shareholders while enhancing NSC’s long-term growth prospects,” NSC Executive Vice President Takahiro Mori adds. “We have a strong balance sheet and are confident in our ability to unlock the potential of bringing together NSC and U. S. Steel through advancement in steelmaking, creating long-term value for our companies’ stakeholders, including our customers, employees suppliers, communities and shareholders.”

U.S. Steel President and CEO David B. Burritt says, “NSC has a proven track record of acquiring, operating and investing in steel mill facilities globally—and we are confident that, like our strategy, this combination is truly best for all. This transaction realizes the tremendous value today in our company and is the result of our board of directors’ comprehensive and thorough strategic alternatives process.”

He adds that the transaction combines two like-minded companies that focus on safety, shared goals and values.

“For customers, U. S. Steel and NSC create a truly global steel company with combined capabilities and innovation capable of meeting our customers’ evolving needs,” Burritt says, adding that the transaction benefits the country by “ensuring a competitive, domestic steel industry while strengthening our presence globally.”

The companies’ shared focus on decarbonization also should “enhance and accelerate our ability to provide customers with innovative steel solutions to meet sustainability goals,” he says.

U.S. Steel notes a number of strategic benefits to the transaction:

• The transaction combines leading technologies across NSC and U.S. Steel to advance innovation and deliver high-grade steel products, such as electrical steel and automotive flat steel to customers globally. U.S. Steel describes itself as an innovator in energy efficiency, with Big River Steel operating one of the most advanced, state-of-the-art sustainable mills in North America. Synergies from the transaction will be driven by bringing together advanced production technology and know-how between U. S. Steel and NSC, including in cost-effective operations, energy savings and recycling. NSC’s technology and products will further advance the technical capabilities of U.S. Steel’s portfolio of products, better supporting the evolving demand of customers in the United States.
• Together with U.S. Steel, NSC will be well-positioned to capitalize on growing demand for high-grade steel, automotive and electrical steel. Further, NSC is committed to serving customers in the United States and delivering high-performance steel products to meet the needs of every application.
• NSC and U.S. Steel share a commitment to decarbonize by 2050 and recognize that solving sustainability challenges is a fundamental pillar of a steelmaker’s existence and growth. A key area of collaboration post-transaction will be to continue to advance this goal and drive alternative technologies in decarbonization. NSC is developing three technologies, including hydrogen-injecting technology into blast furnaces, high-grade steel production in large electric arc furnaces (EAFs) and hydrogen use in the direct iron reduction process. U. S. Steel is similarly focused on reducing its carbon footprint, including using less energy in its existing operations and integrating EAF capabilities into its footprint.
• All of U.S. Steel’s commitments with its employees, including all collective bargaining agreements in place with its unions, will be honored, and NSC is committed to maintaining these relationships.
• The transaction accelerates NSC’s growth and positions it to deliver higher growth, enhanced profitability and long-term value for NSC shareholders. The all-cash offer also provides strong value creation and certainty of value for U. S. Steel shareholders.

Citi is the financial advisor to NSC, while Ropes & Gray LLP is its legal advisor. Barclays Capital Inc., Goldman Sachs & Co. LLC and Evercore are the financial advisors to U. S. Steel, while Milbank LLP and Wachtell, Lipton, Rosen & Katz are its legal advisors.

*This article was updated Dec. 19, 2023, to add the statement from Laurenco Goncalves of Cleveland-Cliffs.