On Monday, U.S. Steel agreed to a takeover bid by Japan’s Nippon Steel for $14.1 billion. Ironically, U.S. protectionism played a role. 
Takeover Drama
The New York Times reports U.S. Steel to Be Bought by Japanese Rival After Takeover Drama
U.S. Steel, which was formed more than a century ago from a part of Andrew Carnegie’s industrial empire, has been weighing several takeover bids, including by a domestic rival, Cleveland-Cliffs. A little-known steel producer, Esmark, made an even larger bid — one that was light on details — before withdrawing days later.
In the end, U.S. Steel chose an offer by one of its biggest global competitors that was worth significantly more than Cleveland-Cliffs’ initial offer: Nippon Steel will pay $55 a share in cash, compared with the $35-a-share cash-and-stock bid that Cleveland-Cliffs made in August.
Analysts at BMO Capital Markets said that Nippon Steel’s bid came as a surprise, and that the price it offered was even “a bigger surprise,” representing a “hearty” valuation for U.S. Steel.
Once the World’s Largest Corporation
CNN notes that US Steel Was Once the World’s Largest Corporation
US Steel has agreed to be bought by Nippon Steel, Japan’s largest steelmaker, in a $14.1 billion deal.
The deal marks the latest step in a gradual decline for the iconic 122-year old company, which was once the largest company on the planet. It was one of the first major conglomerates and a symbol of American industrial might.
But it is no longer even the largest US steelmaker, having been surpassed by Nucor Steel years ago.
United Steelworkers Union Howls
USW News reports Union Slams Nippon Plan to Acquire USS
The United Steelworkers (USW) International President David McCall today issued the following statement slamming an announced deal in which Japan’s Nippon Steel will purchase U.S. Steel:
“To say we’re disappointed in the announced deal between U.S. Steel and Nippon is an understatement, as it demonstrates the same greedy, shortsighted attitude that has guided U.S. Steel for far too long.
“We remained open throughout this process to working with U.S. Steel to keep this iconic American company domestically owned and operated, but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company.
“Neither U.S. Steel nor Nippon reached out to our union regarding the deal, which is in itself a violation of our partnership agreement that requires U.S. Steel to notify us of a change in control or business conditions.
“Based on this alone, the USW does not believe that Nippon understands the full breadth of the obligations of all our agreements, and we do not know whether it has the capacity to live up to our existing contract. This includes not just the day-to-day commitments of our labor agreement, but also significant obligations to fund pension and retiree insurance benefits that are the most extensive in the domestic steel industry.
Senator Fetterman Outraged
The Hill reports Fetterman says he’ll work to block ‘absolutely outrageous’ US Steel sale
Sen. John Fetterman (D-Pa.) vowed Monday to work to block the $14.9 billion sale of U.S. Steel Corp. to Japanese steelmaker Nippon Steel, which he described as an “outrageous” move.
“I live across the street from U.S. Steel’s Edgar Thompson plant in Braddock,” Fetterman said in a statement. “It’s absolutely outrageous that U.S. Steel has agreed to sell themselves to a foreign company. Steel is always about security — both our national security and the economic security of our steel communities. I am committed to doing anything I can do, using my platform and my position, to block this foreign sale.”
“This is yet another example of hard-working Americans being blindsided by greedy corporations willing to sell out their communities to serve their shareholders. I stand with the men and women of the Steelworkers and their union way of life,” he said in his statement.
U.S. Steel’s Sale Is Industrial Policy Boomerang
The Wall Street Journal has the story correct. “Protectionists paved the way for Nippon’s takeover of U.S. Steel,” says the Journal noting U.S. Steel’s Sale Is Industrial Policy Boomerang.
We have to admit to a smile as Washington’s protectionists howl about Japanese steel manufacturer Nippon Steel’s $14.1 billion deal to buy U.S. Steel. They apparently miss the irony that their tariffs and industrial policy have resulted in the foreign takeover of an iconic U.S. manufacturer.
U.S. Steel put itself on the auction block this summer and sought to strike a deal while the irony is hot. Trillions of dollars in Washington spending on public works and green energy are goosing domestic demand for steel while tariffs protect U.S. manufacturers against foreign competition. U.S. Steel’s best assets are political creations.
President Trump in 2018 slapped 25% tariffs on foreign steel under the pretense of protecting national security. Domestic steel producers lobbied for the tariffs, which they said would protect American workers from cheap foreign imports. Yet U.S. Steel’s workforce had shrunk to 22,740 at the end of 2022 from 29,000 in 2018.
The evidence shows that the tariffs have resulted in fewer downstream manufacturing jobs and raised prices for consumers, all while padding the bottom line of domestic steel makers.
The U.S. iron-and-steel-mill order backlog is currently at a 15-year high. Because U.S. steel makers can’t meet demand, projects will be delayed or contractors will have to pay higher prices for foreign steel. That’s bad for consumers. But the cosseted U.S. steel makers will benefit from higher prices and profits.
You can understand why Nippon wanted to get in on the Washington spending action, especially as manufacturing flags in Europe and much of the world. Nippon’s $14.1 billion bid is roughly double what Cleveland-Cliffs offered to pay for U.S. Steel this summer, which underscores the economic value of tariff avoidance.
Economic Value of Tariff Avoidance
There’s a double irony in play. The Journal notes the USW supported the Cleveland-Cliffs’ courtship, the auto makers are worried about the potential behemoth’s pricing power.
“The combined company would have controlled 100% of blast furnace production in the U.S. and 65% to 90% of domestic steel used in vehicles.”
It will be interesting to see how Biden reacts to this mess that he and Trump created.
US consumers are likely screwed one way or another.
A Bipartisan Zeal for Nonsensical Tariffs
In case you missed it, please see A Bipartisan Zeal for Nonsensical Tariffs that Raise Prices and Slow EV Progress
Tariffs are one thing that Republicans and Democrats, agree on. It’s economic madness.
Eliminating tariffs would literally speed up everything EV related.
But the UAW does not want that, Biden does not want that, Trump does not want that, Republicans don’t want that, and Democrats don’t want that.
See the above link for discussion.
Hey Mish – I think it would be nice if you could make some time to a little more in-depth on this topic.
We are all biased in with our own lives. My instinctual reaction to this buyout/merger is that I trust Japanese business executives far more than modern USA business executives to do the ‘right thing’ in regards to national security for both countries.
I agree
Perhaps I will revisit
The Hooties disrupted global trade. They punished Europe, Qatar and Egypt that
supported Hamas. Demand for US LNG and US dollars might rise. Ibn Taymiyya : “kill the infidels, the Christians, the Jews and especially the Alawites”. The Muslim Bros stabbed Hafez Al Assad, bc he was an “illegitimate” president. They stabbed
Bashar Al Assad in the back during the civil war. Bashar is worse than Bibi.
Syria, the Saudi, Egypt and several Gulf states don’t shed tears about Hamas. Harvard and MIT – the useful idiots – support the global Jihaad.
No, thank corporate executives for hollowing out their businesses and refusing to modernize to stockholders and exporting jobs. A country which can’t manufacture important items isn’t much of a country
Agreed. US Steel has been posting profits since 2010. Here’s a fantastic YCharts for US Steel stock buybacks. Set the table to 5Y and look at all of those hundreds of millions of dollars in buybacks instead of investing in upgrading plants & adding production. The company literally has been on a 5-year bender trying to sell itself, and just turned down a US-based offer from Cleveland-Cliffs two weeks ago that was half of Nippon’s. There’s no way Nippon pays that much and doesn’t start investing in the future. These are the Japs. They think long-term. Good for them and good luck to the unions.
United States Steel Stock Buybacks (Quarterly) (ycharts.com)
An irony of the Houthis is that they are disrupting international trade. Imagine if China does invade Taiwan, with so much manufacturing done in China.
Hollowing out the U.S. industrial base does have consequences. There is a double edged sword in consumers getting lower prices while workers lose jobs and income.
Carly Fiorina dumped some 30,000 HP employees and later ran for Governor in California. Her previous actions came back to haunt her.
In a perfect world, all currencies would be equal, as well as work force capabilities, such that there be no advantage to manufacturing in one place over another. Every country would have the same standard of living.There shouldn’t be boom and bust cycles, which promote protectionism, when hard times occur. But that is utopia, which doesn’t exist.
“In a perfect world, all currencies would be equal, as well as work force capabilities, such that there be no advantage to manufacturing in one place over another.”
Why, oh, why; is a world where there is no advantage to manufacture ice on Greenland; as opposed to Sahara; somehow “Ideal”?
What the heck is it about comparative advantage and gains from trade which is so difficult to grasp?
Is this the comparative non-advantage I’ve heard about?
“…and slow EV progress…”
LULZ
EVs are DOA.
Battery tech is convex… DIMINISHING RETURNS… non-recyclable… hyper-toxic.
There aren’t enough raw materials/resources to shift even 5% of global transit to battery-based (EV) platform… not even close.
The EV fixation here @ MT = the “autonomous driving” fixation here just 5 years ago… how’s that going??? LULZ.
If you believe this deal will go through you can get US Steel stock (X) for $48 this morning and make 14.5% when the deal closes. The “market” has a lot of doubt.
The innovation co cannibalized US Steel (X) for decades. After Trump tariff X ceo
innovated old plants, piling debt at zero rates. X became the most dominant co in
the industry, but the cost of debt scared David Burritt, X ceo. Senators Casey and Fetterman are against the deal. Japanese 7-Eleven takeover of Speedways flopped. US10Y minus Japan 10Y was 4%. Blame the Fed, not Trump 25% tariffs.
Barn. Barn door open. No horse. Highway.
I’m all for cutting the government by 80% and going back to the day where government revenues are primarily from tarrifs. During that time, the US became an industrial powerhouse. Who cares if Japan owns US Steel. If they invest in it and improve its efficiency, that’s a good thing. The jobs and plant and equipment are in the US. I’m much more concerned with the export of jobs and know how and the blatant stupidity of woke capitalism.
Agreed. Japan is a friendly nation unlike China. With such massive backlog for steel, I would like to what’s holding US Steel back from expanding production capacity. I cannot believe that’s it’s due to tariffs. If it is, then someone needs to explain that in depth. The last time they lost money was back in 2010, so there’s lots of money to do so. I would expect Nippon to expand production to some extent in the coming years. It’s the only thing that would make sense to achieve an ROI on such a premium price.
What’s holding them back is old outdated steel plants. Good luck getting new ones built (will take 10 years or more after environmental studies and endless protests against using coke to make steel). All that before considering the union aspect.
Instead Nippon Steel plans to acquire US Steel so they can qualify as a US steel maker and ship product here tariff free.
That may all be well and good, but that just points to greed on the part of the shareholders which is fine. It’s called capitalism for a reason. But again, let’s not blame tariffs like Mish so quickly does. If there were NO tariffs, there’s a decent chance US Steel would be filing bankruptcy.
Again, my bet is that Nippon takes reasonable steps to expand production. They’re a Japanese company with a more long-term focus. US Steel has posted some extremely solid profits over the last 5 years, more than enough to have spent capital monies to upgrade production.
I’m skeptical, especially of the union aspect. There’s virtually no reason for unions to exist these days. One can point to wage inflation that results from unions as being as much or more than tariffs in terms of inflationary pressures.
People yammered about Trumps tariffs causing prices to increase. All of my research suggests that by and large, the exporters paid most the tariffs out of their gross margins.
Why are shareholders greedy? They are mostly people like you and me with the stock held in a pension fund. So are we greedy for wanting to get the most money for our stock? That’s pretty much the only reason for owning stock, to make money.
And yes, of course US Steel would be bankrupt without tariffs. Why is that a bad thing? It would have forced the company to reorganize as a smaller more efficient production. Or close up entirely. That’s what bankruptcy is for. Instead it’s propped up by tariffs so that we (you, me, everyone) can support a steel industry that’s not competitive.
My guess is that they won’t do much other than export Japanese steel here for big profits to cover the 14 billion buyout. I’d imagine they will try and close as many older less efficient plants as possible and keep a few that are more modern and then maybe, just maybe build some new ones here in a few years (decade plus) if the timing is good (ie get some nice government handouts to build new plants and skip past environmental over sight).
“Why are shareholders greedy? “
The last I checked greed is one of the 7 deadly sins. There’s a difference between greed and turning a good profit. No bankruptcy is never a good thing IMO. It puts people out of work over other people’s greed & incompetence. These are not good virtues. Our brand of capitalism has gotten vastly skewed.
The only thing I’m sure about in the whole deal is that the Japanese will do a better job running the company.
Hopefully it will work out better for the Japanese than Rockefeller Center. Here’s a somewhat related story. Hyundai sells a giant factory in Russia for $77. Sounds like a terrible ROI. But someone is getting a bargain.
Here’s the link
https://www.rt.com/business/589374-hyundai-sells-russia-plant/
The Trump 25% steel tariff was economic insanity. That foreign competitors are now buying American steel companies (despite virulent opposition by unions and politicians) is a sign that those competitors count on economic illiteracy to remain dominant in Washington DC (whoever is in power).
No credibility when you quote Fake News NYT, Fake News CNN and Fake Senator John Fetterman.
My favorite Fetterman quote. Is. “Uhm, err, vorpal sway turig snat!”
Is there something you disagree with that you do not think is “fake?”
Yes. Joe Biden is a real idiot.