After defeating competitors including Cleveland-Cliffs (CLF.N) and ArcellorMittal (MT.LU) in an auction for the 122-year-old legendary steelmaker, Japan’s Nippon Steel (5401.T) sealed a deal on Monday to purchase U.S. Steel (X.N) for $14.9 billion in cash.
The $55 per share transaction price is 142% higher than what was offered on August 11, the final trading day before to Cleveland-Cliffs’ announcement of a $35 per share cash and stock offer for U.S. Steel.
The action by Cleveland-Cliffs caused U.S. Steel to begin the process of selling. According to the sources, U.S. Steel decided at a board of directors meeting on Sunday that Nippon’s offer was better than Cleveland-Cliffs’s, which had increased its offering to around $40 per share.
The result is also a setback for ArcelorMittal, which reportedly went after U.S. Steel as well, according to Reuters. At a mill owned by Nippon and ArcelorMittal in Alabama, semi-finished goods, or slabs, that are purchased from domestic and international vendors are processed to create steel sheet products. Additionally, they are spending almost $1 billion on an electric arc furnace.
In addition to greatly increasing its output in the US, where steel prices are predicted to rise as automakers ramp up production in the wake of their recent agreements with labor unions to end strikes, the deal will assist Nippon, the fourth-largest steel maker in the world, in reaching its goal of 100 million tonnes of global crude steel capacity.
Nippon failed to provide any estimates of the efficiencies that will result from the agreement to support the price it will pay. It was stated that combining cutting-edge production technology with expertise in operations, energy conservation, recycling, and product development would result in synergies.
“We believe Nippon is paying too much for those resources. This is not the domain of technology. The steel business is still cyclical, according to Gordon Johnson, an analyst with GLJ Research.
In pre-market trading on Monday in New York, shares of US Steel saw a 28% increase, closing at $50.50.
Nippon stated that U.S. Steel will uphold all of its obligations to its workers, including any collective bargaining agreements it has with its union.
