Nippon Steel/US Steel: Japan Inc must recall lessons of history

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It may be almost 2024, but an echo of the late 1980s lingers. On Monday, US Steel announced that it would sell itself to Nippon Steel of Japan at an enterprise value of $15bn.

The venerable American business was once the backbone of its country’s industrial base. In recent decades it has suffered from the onslaught of cheap foreign producers, first from Japan, then China. 

But tariffs imposed by Donald Trump and infrastructure largesse dished out by Joe Biden have suddenly made the idea of producing steel in the US more interesting.

Nippon, the fourth-largest steelmaker in the world, is one of many Japanese companies pursuing growth outside its home regions.

US Steel shareholders will receive a takeover price more than double the company’s trading value prior to an auction launched this summer. However, closing the deal may prove tricky. US regulators are wary of foreign takeovers of significant domestic assets.

Members of the US’s United Steelworkers union voiced dismay about the deal, saying they had been excluded from negotiations. They would have preferred a transaction with Cleveland-Cliffs. The US iron ore miner-turned- steel-consolidator kicked off merger and acquisition fireworks in August with a much lower unsolicited bid for US Steel. A Cleveland-Cliffs/US Steel combination would have created a US national champion.

Cleveland-Cliffs’ own enterprise value of $13bn pales before an aggregate valuation for Nippon Steel of more than $40bn. For its part, Cleveland-Cliffs said it hoped the Nippon deal would reset corporate asset prices higher.

Nippon’s all-cash blowout offer is a win for US Steel shareholders. The purchase price represents a 7.5 times multiple of enterprise value to annual ebitda, slightly above similar transaction valuations.

A Japanese foray into US dealmaking four decades ago raised the hackles of locals and proved financially disappointing for the incomers. The former is already true of Nippon Steel’s offer. It is up to its bosses to avoid the latter.