Actions Nippon Steels rose today after US President Donald Trump approved the offer from 14,9 billion dollars for U.S. Steel, after 18 months of negotiations. Shares of Nippon, the world's fourth-largest steelmaker, rose as much as 5 percent on the Tokyo Stock Exchange, before limiting their gains to 1,54 percent.
Friday, Trump signed an executive order authorizing the merger, subject to an agreement with the Treasury Department to address national security concerns. It has been a long and arduous journey, with union resistance on one side and two national security reviews on the other.
The agreement provides for theacquisition of 100% of American society by the Japanese group for 14,9 billion dollars, with the United States maintaining a golden shares to control key decisions and some board seats. It will create the world's second largest steel producer, a competitor to Nucor Corp. which for a generation dominated the American steel industry.
The operation strengthens industrial ties between the two countries and is seen as a relaxing signal in a tense international climate due to the duties of the Trump administration. But above all, the agreement opens up new investments in the US steel industry: $14 billion by 2028 (including $4 billion for a new steel plant in the US). In addition, commitments will be made on trade and production: Nippon Steel's annual production capacity will increase from 63 to 86 million tons. In addition, new facilities should be created over 100.000 jobs.
How will Japanese investors finance themselves?
For investors in the Japanese steel company, one of the main short term concerns term will be the financing plans, both for the all-cash acquisition and for the promised investments, which have increased significantly over the months of negotiations and now range from the modernization of existing plants to the construction of a new steel mill.
“For now, the main concerns are the size of the investment, how it will be financed and the payback period, all of which remain vague,” said Ryunosuke Shibata, an analyst at SBI Securities Co, when asked by Bloomberg. “It is difficult to imagine that the entire amount will be financed through debt, especially since such interest-bearing liabilities would have an impact on the rating credit and US interest rates are still between 4% and 5%. I believe Nippon Steel needs to issue new actions“. He added that the company may seek to raise up to 1 trillion yen ($6,9 billion) on capital markets.
Nippon Steel's last-minute win came against all odds. In January, it faced opposition from then-President Joe Biden and even Trump, who criticized foreign ownership of an American industrial icon. For Nippon Steel, it's a bet on a new market for its high quality special steel to counteract falling domestic demand and face competition from low-cost Chinese exports.
