Nippon Steel announced the purchase of US Steel for $14.9 billion
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Today, one of the largest metallurgical companies in the world, the Japanese Nippon Steel Corporation, announced the purchase of its competitor, the American US Steel. The total amount of the transaction, including US Steel’s debt obligations, is $14.9 billion. Experts believe that this transaction is beneficial for the American company, which has recently been going through difficult times and has already begun to look for a buyer. However, for the Japanese company, this deal is a good way to gain a foothold in the North American market in the face of growing competition from Chinese, Korean and Indian metallurgical companies.
IN statement Nippon Steel Corporation (NSC) said it will pay $55 per share in free cash for US Steel shares. This price represents a 40% premium to the closing price of US Steel shares on December 15th. Taking into account the debt of the American company, the total amount of the transaction, which has already received approval from the boards of directors of both companies, will be $14.9 billion.
After the announcement of the deal, US Steel shares jumped in price by 30% in stock trading.
US Steel is one of the oldest steel companies in existence. In 1901, it was founded by the famous entrepreneur John Pierpont Morgan, whose name is still borne by one of the largest banks in the world – JPMorgan Chase. Throughout the 20th century, US Steel consistently bought up regional US steel producers, becoming one of the largest in the country. In 1986, US Steel was even the target of a hostile takeover attempt by prominent corporate trader Carl Icahn. But, unable to reach an agreement with unions and shareholders, Mr. Icahn eventually abandoned US Steel.
As steel production grew in Japan and South Korea in the 1970s and 1980s, and later in China and India beginning in the 2000s, and as large-scale steel production began to gradually move away from Western countries, US Steel began to lose its global position. To cope with declining sales, the company sold several divisions in the 2010s. In 2014, US Steel was excluded from the S&P 500 index of the largest American companies due to a decline in market capitalization.
In August, US Steel announced it was looking for a strategic investor. Regional American manufacturer Cleveland-Cliffs offered to buy the company for $7.3 billion, but US Steel was not satisfied with this price. According to media reports, the possibility of purchasing US Steel considered metallurgical concern ArcelorMittal, but the matter did not reach an official offer.
For Japan’s NSC, the deal with US Steel will increase global steel production from the current 66 million tons per year to 86 million tons.
This will help the Japanese bypass ArcelorMittal with 69 million tons and become second the world’s largest metallurgical company after the Chinese Baowu Steel Group (132 million tons). Experts notethat the purchase of the assets of US Steel, which will retain its name and headquarters in the US, will also enable Nippon Steel to cope with weaker demand in the local market and is part of its goal of expanding international operations, including in the US and Asian markets.
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