Nippon Steel confident hefty premium for U.S. Steel makes sense
By Yuka Obayashi and Mariko Katsumura
TOKYO (Reuters) — Nippon Steel said on Tuesday it can afford to pay $14.9 billion for U.S. Steel, justifying the huge premium it offered as having «sufficient economic rationale», even as the Japanese steel giant's shares sank more than 5%.
The acquisition will help the world's fourth largest steel maker move toward 100 million metric tons of global crude steel capacity and make it a bigger supplier to the U.S. auto industry.
«Nippon Steel aims to complete a global network… by establishing a base in the United States… where steel demand is expected to grow,» the company's president, Eiji Hashimoto, told a news conference.
The Japanese steel giant clinched the deal with an offer of $55 a share in cash, which was a whopping 142% premium to U.S. Steel's share price on Aug. 11, the last trading day before Cleveland-Cliffs (NYSE:CLF) unveiled a $35-per-share, cash-and-stock bid.
When asked how Nippon Steel could justify paying such a high premium, Hashimoto said there was a «sufficient economic rationale», without elaborating.
The company has not given any projection on the value of the synergies that will arise from the deal.
«This deal will propel Nippon Steel into the top 3 global makers of steel,» Japan analyst Mark Chadwick wrote on the Smartkarma research platform.
LSEG data showed Nippon is paying the equivalent of 7.3 times U.S. Steel's 12-month earnings before interest, taxes, depreciation and amortisation (EBITDA).
Nippon Steel's shares fell 5.5% in early trade in Tokyo, after being untraded with a glut of sellers after the open.
U.S. Steel shares ended trading up 26% at $49.59 on Monday following the deal announcement.
The automotive and transportation sector represented
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