US Nippon Steel rebuff would be cruel and kind
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Antony Currie
MELBOURNE, Sept 10 (Reuters Breakingviews) -So much for an M&A shortcut. It looks increasingly likely that the Biden administration is about to block Nippon Steel's 5401.T $14.9 billion agreed takeover of United States Steel X.N, Reuters reported in an exclusive on Sept. 5 citing three people with knowledge of the situation. That would be both a cruel and kind blow to the Japanese company's plans to offset challenges at home and beyond.
U.S. presidential candidates Kamala Harris and Donald Trump had already voiced their opposition to the tie-up. Now the Committee on Foreign Investment in the United States (CFIUS) has, in a letter seen by Reuters, said the deal would damage American steel production, among other things.
Arguably the issues Nippon Steel is trying to tackle should give CFIUS some comfort. Japanese production dominates the $20 billion industrial giant's output, accounting for the vast majority of its 66 million tons a year of steelmaking capacity. But that market is shrinking, pushing Nippon boss Eiji Hashimoto to look abroad. Owning U.S. Steel would give it 20 million tons a year of capacity in a market where demand for high-grade steel is strong and where tariffs of 25% imposed on imports of the metalin 2018 have bolstered profits.
That protectionism would add a partial bulwark to Nippon's earnings against developments in China. The country's property slump has reduced demand but with little change in its 1 billion tons a year of supply. The resulting overcapacity has left the vast majority of mills unprofitable, per Macquarie, and led to a 24% increase in exports in the first half of the year to 54 million tons. Fear of cheap Chinese exportshas prompted Nippon and others to urge Tokyo to impose restrictions, Reuters reported last month.
Such concerns are good reasons for Hashimoto to leave the markets for U.S. Steel's output untouched. Last week Nippon publicly pledged to prioritise American-made metal for U.S. buyers, as well as to put a majority of U.S. citizens on his new subsidiary's board.
If the U.S. does forbid the deal, it'll leave Nippon more exposed to industry challenges and end Hashimoto's hope of quickly hitting his twin goals of 100 billion yen ($700 million)of annualunderlying profit and 100 million tons a year of capacity. But he has other options, not least to build up to 30 million tons of annualcapacity in India with joint venture partner ArcelorMittal MT.LU.
Granted, such projects will take longer. But they also won't come with the whopping 140% premium he's offering for U.S. Steel that would cap the return on investment at some 5%, Breakingviews calculates, or around Nippon's cost of capital, per LSEG. On that score at least, U.S. authorities may be doing Nippon shareholders a favour.
Follow @AntonyMCurrie on X
CONTEXT NEWS
The Biden administration told Nippon Steel in a letter on Aug. 31 that its $14.9 billion acquisition of United States Steel would pose a national security risk by harming the American steel industry, Reuters exclusively reported on Sept. 5. The three people who provided Reuters with the information added that the White House is poised to block the deal.
The two companies were given until Sept. 4 to respond.
Graphic: Nippon Steel-US Steel deal appears to be melting down https://reut.rs/4gk3o47
Editing by Robyn Mak and Aditya Srivastav
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
