Shares of American manufacturing icon United States Steel experienced a significant decline on Wednesday amid renewed concerns regarding its deal with Nippon Steel.
Investor unease appears to stem from President Joe Biden’s involvement, as reported by The Financial Times, which cited sources familiar with the decision. The report suggests that Biden will express concerns over the proposed takeover of U.S. Steel by the Japanese steel company Nippon in the coming weeks. Despite requests for comment, the White House remained silent on the matter.
In response to these developments, Nippon and U.S. Steel issued a joint statement reaffirming their commitment to the deal and their willingness to collaborate with all stakeholders, including employees, to facilitate its completion.
“We welcome the Administration’s scrutiny of the transaction, as an objective and comprehensive review of this transaction will demonstrate that it strengthens U.S. jobs, competition, and economic and national security,” part of the statement read. “As part of Nippon Steel’s plans to invest in the American steel market and grow U.S. Steel, it has made clear that there will be no job losses, plant closures, or transfer of production resulting from this transaction.”
Following the news, U.S. Steel stock closed at $40.86 on Wednesday, marking a 12.8% decline—the largest one-day percentage decrease since 2020. Earlier in the day, the stock had been trading around $46 per share. In contrast, the S&P 500 saw a modest decline of 0.2%, while the Nasdaq Composite closed 0.5% lower.
Nippon’s proposed acquisition of U.S. Steel at $55 per share in cash presents an enticing opportunity for U.S. Steel shareholders, offering a potential gain of over 30% if the deal is finalized as originally planned. However, the market’s pricing suggests skepticism regarding the deal’s likelihood of completion.
The prospect of a Japanese company acquiring U.S. Steel has stirred political controversy and drawn criticism from politicians and the Steelworkers’ union. Despite this, Nippon has stated its intention not to close mills, framing the acquisition as an investment in the U.S. economy.
Once a dominant force in the global steel industry, U.S. Steel has since fallen to 27th place, shipping approximately 14.5 million tons in 2023. In contrast, Nippon ranks fourth among steelmakers, shipping over 44 million tons.
Notably, Nippon boasts higher profitability, with an operating profit margin of nearly 9% in 2023—three percentage points higher than U.S. Steel’s. This superior profitability is reflected in historical earnings, as Nippon has earned roughly twice the operating profit of U.S. Steel over the past 11 years.
The potential infusion of Nippon’s profits into U.S. Steel’s assets holds promise for revitalizing the company. However, concerns persist among politicians regarding the implications of the acquisition.