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United States Steel Corp. faces the prospect of being broken apart and sold in parts if Nippon Steel Corp.’s $14.1 billion takeover fails.
That’s the view of analysts following the latest twists of the proposed takeover of one of the most iconic American companies. Nippon Steel’s deal is subject to a review by the Committee on Foreign Investment in the United States, and President Joe Biden plans to kill it as soon as the CFIUS referral lands on his desk, Bloomberg reported this week.
The fate of the deal isn’t entirely clear. As of earlier this week, CFIUS hasn’t transmitted the case to the president. And while Biden has said US Steel should remain American owned and is said to be planning to kill the deal, the White House hasn’t pledged to do so publicly or given any timeline. Top Japanese officials say they’re hopeful issues can be resolved.
If the transaction does get blocked, US Steel will likely be forced to restart a sale process — a year after its earlier attempt to find a buyer — and this time it’s unclear who, if anyone, would be willing to acquire the whole company, according to analysts.
“It’s hard to see any steel entity as they are today buying all of US Steel,” said Josh Spoores, principal steel analyst at CRU Group. “It may end up getting split up between bidders.”
Bidders for US Steel’s assets could range from private equity firms, investment firms and other domestic steel producers, Spoores said.
US Steel’s new electric steelmaking mill in Arkansas, known as Big River Steel, is arguably its most valuable asset. American producers including Nucor Corp. and Steel Dynamics Inc. — which are actively investing in less-polluting manufacturing processes — could be among potential buyers of the plant, according to Philip Gibbs, analyst at KeyBanc Capital Markets.
Nucor and Steel Dynamics didn’t immediately respond to messages seeking comment.
Meanwhile, its traditional union-operated blast furnace facilities may prove less appealing, with recent comments from US Steel hurting their sale prospects. Chief executive officer David Burritt said Wednesday that without the Nippon Steel transaction, the company will largely pivot away from its blast furnace facilities.
“They effectively acknowledge that the blast furnace assets need investments to be competitive over the next five to 10 years,” Gibbs said. “Anyone buying those is probably going to get some sort of deal.”
US Steel didn’t provide further comment on the prospects of alternatives if the Nippon Steel deal falters. Nippon Steel didn’t immediately comment.
Shares of US Steel rose as much as 7.4% in New York to as high as $32.20. That’s still well below Nippon Steel’s all-cash offer of $55 a share, a signal that investors doubt the existing deal will succeed.
US Steel’s blast furnace plants, which rely on heating coal to make steel and are typically operated by union workers, could be acquired by rival Cleveland-Cliffs Inc., including the historical Mon Valley plant in the suburbs of Pittsburgh, where both US Steel and the United Steelworkers union are headquartered. Cliffs lost out to Nippon Steel last December in the bidding process for US Steel.
Cliffs CEO Lourenco Goncalves has repeatedly said he’s still interested in US Steel, reiterating his position as late as Thursday in a CNBC interview. The CEO’s comments come despite Cliffs being in the midst of acquiring Canadian steelmaker Stelco Holdings Inc. in a $2.8 billion deal.
An US Steel acquisition by Cliffs could raise antitrust concerns, given the increased concentration of domestic steel production in the hands of a single company, according to Wolfe Research analyst Timna Tanners.
“There’s conceivably a solution that does see them carved up,” Tanners said, though it’s “pretty tough to transact” because US Steel has a lot of niche assets that may not have any obvious buyers. Those include steelmaking assets in Slovakia or its tubular products business.
To continue as a standalone company, US Steel would most likely shut down Mon Valley and move its headquarters out of Pittsburgh, she said, echoing Burritt’s strategy that he said involves job losses.
United Steelworkers President Dave McCall said in an interview Thursday that US Steel can proceed as-is and brushed aside company threats that plants could close if a deal collapses.
“I don’t think there’s any real need to do a split up deal,” he said, adding that he believed there’d be suitors for anything potentially facing closure. “Splitting it up is to nobody’s advantage.”
The acquisition of US Steel by a Japanese steelmaker has been a political lightning rod ever since its December announcement. The offer sparked outcry among the United Steelworkers and politicians, including Republican presidential nominee Donald Trump. Biden and Vice President Kamala Harris, the Democratic Party’s presidential candidate for the November election, say the company should remain American owned and operated.
The future of US Steel, a major employer in the swing state of Pennsylvania, also has crucial political implications in an election year. Pennsylvania Governor Josh Shapiro signaled that some form of talks with the Biden administration, union workers and the private sector are ongoing, with a spokesman saying the governor and his team are working to find a solution that protects jobs.
Meanwhile, Japan’s top government spokesman said he still hopes that Nippon Steel’s takeover bid will get resolved in a mutually beneficial way. His remark indicate that the upper echelons of Prime Minister Fumio Kishida’s administration are still not resigned to the deal failing.
“I don’t think the deal is a 100% dead, but it’s definitely on life support,” Wolfe’s Tanners said.
(By Sana Pashankar)
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