Nippon Steel, the fourth-largest steel producer in the world, said it would buy U.S. Steel (X) for $14.9 billion, including debt. Offering to pay $55 per share, Nippon’s bid marks a premium of around 40% to U.S. Steel’s latest closing price, underscoring the Japanese manufacturer’s strong belief in the attractiveness of its rival. The company’s stock surged 28.6% in premarket trading, trading at $50.58 at the time of writing.

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U.S. Steel $14.9B Deal to Be One of the Largest Acquisitions for Nippon

U.S. Steel saw its stock price soar 28.6% in premarket trading Monday after Japanese peer Nippon Steel announced it would buy the steel producer in a $14.9 billion deal, including debt. The offer of $55 per share represents a premium of about 40% to U.S. Steel’s Friday closing price and 142% compared to its share price before the company initiated a strategic review process in August.

As one of the world’s biggest steelmakers, Nippon sees the U.S. market as a lucrative growth opportunity that can help offset waning demand in Japan. The Tokyo-based company has secured funding commitments for the acquisition and expects the deal to enable it to move toward 100 million tonnes of global crude steel capacity. 

Shares of Nippon Steel were down 1% in Tokyo at the time of writing. The deal is expected to be one of Nippon’s largest-ever acquisitions and will significantly impact the steel industry led by long-established Japanese and U.S. players. 

U.S. Steel Targeted by Several Suitors

U.S. Steel announced the launch of a formal review process on Aug. 11 after rejecting an acquisition offer of $7.3 billion from rival Cleveland Cliffs.

The steelmaker has become an increasingly appealing takeover target for global rivals. Despite experiencing multiple quarters of declining revenue and profits, buyers still see U.S. Steel as a unique asset.

Besides its strong relationships with automotive clients, U.S. Steel also supplies to the renewable energy industry. It is poised to capitalize on the Inflation Reduction Act (IRA), which provides tax credits and other incentives for similar projects. 

Furthermore, steel manufacturers are also expected to stage a solid start to 2024 as steel prices rise following a deal the United Auto Workers (UAW) reached with the Detroit Three carmakers, including GM, Ford Motor, and Chrysler.

Futures contracts for hot-rolled coil (HRC), the most traded form of finished steel, soared to approximately $1,070 per short ton from around $700 in late October.  

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