After months of bidding, U.S. Steel finally has a buyer. However, the auction’s winner has some parties concerned. 🤔
Japan’s Nippon Steel emerged as the top bidder for the 122-year-old steelmaker, beating out offers from Cleveland-Cliffs, ArcelorMittal, and Nucor. Its $55 per share price represents a 142% premium to where $X shares were trading before Cleveland-Cliffs’ $35-per-share offer kicked off the bidding war.
It’s a significant bet that the Biden Administration’s infrastructure bill will create spending and tax incentives that greatly benefit U.S. steel. It’ll also help Nippon, the world’s fourth-largest steel maker, ramp up its global crude steel production capacity toward 100 million metric tons. 🏭
Some analysts say Nippon is overpaying for U.S. steel at 7.3x its 12-month EBITDA when the industry average is 7x. However, Nippon said synergies will come from pooling production technology and methods of product development, operations, energy savings, and recycling.
While U.S. Steel shareholders are happy with the high bid, not all parties are excited about the deal. Although Nippon said all of U.S. Steel’s commitment to its employees will remain in place, the United Steelworkers union does not have confidence that is true. 😟
It said it’s planning to fight hard for its members’ benefit, saying, “We will 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.”It is also exploring other remedies, given that the deal may have violated its partnership agreement because neither party contacted the union regarding the sale.
It’s unlikely that anti-trust concerns will stop the deal because Nippon has such a small footprint in North America. However, the U.S. government could pose a challenge given a foreign entity is taking control of critical American assets needed for the electric vehicle industry, broader infrastructure projects, and more. In a presidential election year, everything is on the table, which could prove to be a wildcard for the deal. 🃏
For now, $X shares are trading about 11% below the proposed deal’s share price to reflect that uncertainty. With shares at 12.5-year highs, most shareholders are sitting pretty on their profits right now. We’ll have to wait and see if they get their last 11% or if the deal falls apart. 🤷
