(Bloomberg) — Nippon Steel Corp. had high expectations for the acquisition of United States Steel Corp. worth $14.1 billion. But with the deal likely to unravel, Japan’s largest steelmaker will be forced to consider next steps for rapid growth.
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The bid for the once legendary American company was met with a maelstrom of political opposition in the US in the run-up to the presidential elections. President Joe Biden plans to formally block the takeover before the end of the month, Bloomberg reported this week.
That has left Nippon Steel in the lurch, which wanted to increase crude steel production capacity by 30% with the US Steel deal. The takeover, which would have made it the world’s third-largest steelmaker, was aimed at reducing dependence on the declining Japanese market and helping it compete with major factories in China, whose excessive production and rising exports have led to a trade backlash around the world. world.
Nippon Steel could strengthen efforts in other growth markets, especially India, said SBI Securities Co. analyst Ryunosuke Shibata. “It is an attractive market given the growing population and demand.”
The Indian government has set a target of nearly doubling annual crude steel production capacity to 300 million tonnes by 2030 to meet rising demand. Nippon Steel already has a joint venture there, Arcelormittal Nippon Steel India Ltd., and plans to expand capacity at a plant in western India.
“There could be some big steel companies, for example in India, where they could play a big role,” said Sumit Agarwal, a professor of finance at the National University of Singapore. Other bright spots include Vietnam and Indonesia, where steel demand will continue to rise, he said. The Japanese company has previously identified Southeast Asia as a target for expansion.
Nippon Steel is “confident that our proposed partnership is the best path to securing the future of US Steel,” a spokesperson said in an emailed response, declining to elaborate further on its plans if the deal were to are blocked. The company will work with US Steel if necessary “to consider and take all available actions to reach a fair conclusion.”
The Japanese company will likely be able to maintain its presence in the US, where it has been present since the 1980s. And could even look at ways to expand its existing operations there. Nippon Steel operates integrated mills and has another joint venture with ArcelorMittal, which operates a steel processing plant in Alabama.
Or it could try to save the US deal in court. Nippon Steel and US Steel are ready to litigate the process if Biden does not approve, Bloomberg reported. However, such a strategy would be lengthy and the outcome would be uncertain.
“The president’s decision is not subject to review, so a lawsuit would be a difficult path,” Bloomberg Intelligence litigation analysts Holly Froum and Richard Bourke said in a note on Wednesday.
The US deal has its origins in December last year, when Nippon Steel acquired the US company for $55 per share in cash – significantly higher than a recently rejected offer from domestic rival Cleveland-Cliffs Inc.
But a foreign takeover of an iconic American company based in the swing state of Pennsylvania proved politically too difficult. Leaders of the United Steelworkers union opposed the deal from the start, while Biden, Democratic presidential candidate Kamala Harris and Republican candidate Donald Trump all opposed it.
The acquisition was investigated by the Committee on Foreign Investment in the United States, which raised concerns that Nippon Steel’s cheaper steel mills in India could potentially replace U.S. capacity.
Where the steelmaker is looking for growth will be scrutinized. China – with its state-dominated and bloated steel sector – is not a realistic option. Nippon Steel exited a joint venture there in July as Japanese automakers struggled to maintain market share in Asia’s largest economy. The company will face stiff competition from Chinese rivals when supplying India and Southeast Asia.
“It will be difficult as Chinese supplies enter the area,” said Shibata of SBI Securities.
–With help from Martin Ritchie.
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