Earlier this week, Japan’s Nippon Steel proposed to buy one of America’s oldest and once most valuable companies, the United States Steel Corporation (NYSE: X). The deal reportedly costs $14.9B, translating to $55 per share and a 40% premium. However, many US lawmakers wish to block this deal based on national security grounds. If the deal goes through, it will raise many questions for American steelworkers and their job security.
This isn’t the first time a foreign company has submitted a bid to purchase an American company. Similar deals have gone through, but others were blocked for national security and other reasons. Here’s a quick recap of the current proposal and previous successful and failed foreign acquisitions.
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Nippon Steel and United States Steel Corporation
The United States Steel Corporation was founded in 1901 and is one of the oldest and largest steel producers in the United States. Over the years, the company played a significant role in shaping the American industrial landscape.
However, US Steel has recently faced various challenges, including financial difficulties and discussions of potential mergers.
In the last decades, the company encountered increasing competition from international producers, particularly those in Asia. US Steel Corporation has received multiple purchase offers from domestic and foreign companies. Where does Nippon Steel come in?
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Cleveland-Cliffs Bid
Earlier this year, American mining company Cleveland-Cliffs (NYSE: CLF) offered a $7.1B cash and stock deal to purchase US Steel Corp, according to an anonymous source. The deal never went through, and Cleveland-Cliffs officially withdrew from any interest when the Nippon Steel deal surfaced.
Instead, Cleveland-Cliffs rewarded its shareholders with an aggressive share buyback program, which propelled the stock by more than 12%.
Nippon Steel Japan
Nippon Steel is Japan’s largest steelmaker and decided to swing at the US steel market with its own bid in December 2023. This offer increased US Steel Corp’s stock by 25% but remained below the proposed $55 purchase price.
However, the purchase was met with a lot of criticism from Americans and both political parties. Bi-partisan bills were written to block the purchase. President Biden is a big fan of competition and trade but wants to keep jobs in America, not abroad.
I’m unsure about the national security argument, but it might also come into play if the deal is canceled. Japan also has a bad rep in the steel industry. It often sold low-quality products. Many factors will come into play during this transaction.
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Nippon Steel and a History of Foreign Acquisitions
The process can be very complicated when a foreign company like Nippon Steel wishes to purchase a US company. The biggest hurdle is to get approval from The Committee on Foreign Investment in the United States (CFIUS).
It reviews the national security implications of foreign investments in US companies or operations. Its primary purpose is to assess whether a foreign investment transaction could potentially compromise the United States’ national security. It either approved or canceled the deals below.
IBM and Lenovo (2005)
One notable example of a foreign acquisition like Nippon Steel is trying to do involves IBM (NYSE: IBM). The tech company sold its personal computer division to the Chinese company Lenovo (OTCMKTS: LNVGY) in 2005 for a mere $1.25B.
IBM faced challenges in the highly competitive PC market and decided to divest its PC division to focus on higher-margin businesses, such as services and enterprise solutions.
This move stirred controversy, with critics expressing apprehensions about technology transfer and potential implications for national security.
However, the deal was approved and reflected the evolving dynamics of the global marketplace and the increasing role of emerging economies in the technology sector. Lenovo became the world’s largest personal computer vendor by unit sales in subsequent years, surpassing competitors like HP and Dell.
Unocal and China National Offshore Oil Corporation (2005)
In 2005, China National Offshore Oil Corporation (CNOOC), a Chinese state-owned oil company, launched a bid to acquire Unocal for approximately $18.5B. The move was part of CNOOC’s strategy to secure energy resources to meet China’s growing demand for oil and gas.
Many policymakers disagreed about a Chinese state-owned company owning a major US energy asset. Will that have an impact on this possible Nippon Steel acquisition?
Due to the intense political opposition and scrutiny by the CFIUS, CNOOC ultimately withdrew its bid. Instead, Chevron acquired Unocal for $17.8B. This case contributed to discussions about the intersection of economic interests, national security, and the control of critical energy resources.
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Shuanghui International and Smithfield Foods (2013)
Another controversial acquisition occurred in 2013. Chinese company Shuanghui International purchased one of the world’s largest pork producers and processors, American pork producer Smithfield Foods. This deal was worth $4.7B, representing the largest Chinese acquisition of a US company.
However, the deal raised alarms about controlling vital food resources and the potential impact on domestic agriculture. Critics argued that such transactions could compromise food safety and security, while proponents emphasized the benefits of increased international trade and collaboration.
Ultimately, the deal was approved by shareholders, the CFIUS, and other agencies. This was an important transaction for China as it struggled to meet its population’s food needs. US workers maintained their jobs, and more were created abroad.
Qualcomm and Broadcom (2018)
The technology sector has been a focal point for foreign acquisitions in recent years. In particular, many Chinese companies have attempted to acquire American tech firms, raising concerns about intellectual property theft and national security.
The attempted acquisition of Qualcomm by the previously Singapore-based semiconductor company Broadcom in 2018 faced scrutiny from the U.S. government, highlighting the regulatory challenges surrounding such transactions.
U.S. regulators and the CFIUS expressed concerns about the potential impact of the acquisition on U.S. leadership in critical technologies, specifically the development of 5G wireless technology.
In response to national security concerns, former President Donald Trump issued an executive order blocking the proposed Broadcom-Qualcomm merger. Broadcom moved its H.Q. back to the U.S. later that year. We’ll see how this affects the Nippon Steel deal.
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What Happens After a Foreign Takeover?
The impact of a foreign takeover on the stock of a US public company can vary based on several factors. Here are some of the potential outcomes after the purchase is complete.
Acquisition premium
When a foreign entity acquires a US public company, it often offers a premium over the current market price to entice shareholders to sell their shares. This acquisition premium is often reflected in an immediate increase in the target company’s stock price. When Nippon Steel made its premium offer public, US Steel Corp’s shares immediately jumped on the news.
Acquisition completion
Once the acquisition is completed, the company’s stock may cease trading on its exchange. Shareholders typically receive the agreed-upon consideration, which could be a combination of cash, stock in the acquiring company, or a mix of both. In Nippon Steel’s case, the transaction was proposed as an all-cash deal.
Final Thoughts: Nippon Steel and US Steel Corp
To conclude, a foreign company can purchase a US-based public company. Certainly, there are many hurdles, and the deal can potentially impact the jobs of many local workers. Furthermore, national security concerns are always risky when high-profile tech, mining, or financial companies are part of the deal.
Before the transaction is complete, the news can lead to an immediate rise or fall in the company’s stock price. It can also become very volatile. The final share price should reflect the deal’s financial terms if the transaction is approved.
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Frequently Asked Questions
$14.1 Billion is the price of the sale between Nippon Steel and the United State Steel Company.
US Steel company $X was sold to Nippon Steel, an Asian company. But the headquarters and name will stay the same in the US.
Nippon Steel is a Japanese based company. It's their largest steel maker in that country and one of the largest worldwide.
