Positive light: The US Steel Edgar Thomson Works in North Braddock, Pennsylvania. Shares of the steelmaker skyrocketed as much as 24% after Trump announced his support for a partnership with Nippon Steel. — AFP
WASHINGTON: After more than 17 months of lobbying and close-fought negotiations to secure control of United States Steel Corp, Japan’s Nippon Steel Corp appeared to have received a presidential blessing.
Days later, however, investors, executives and diplomats are still unsure of what exactly the US President endorsed.
Donald Trump heralded a “planned partnership” between the two industrial heavyweights, claiming it would create “at least 70,000 jobs”, roughly five times US Steel’s current American employees, and add US$14bil to the US economy.
But his unexpected announcement last Friday stopped short of explicitly endorsing Nippon Steel’s proposed US$14.1bil cash takeover of US Steel, instead asserting that the company would “remain in America”.
Speaking on Sunday, he provided little additional clarity.
“It’ll be controlled by the United States, otherwise I wouldn’t make the deal,” Trump told reporters at Morristown Airport in New Jersey, as he headed back to Washington.
“It’s an investment and it’s a partial ownership, but it’ll be controlled by the USA.”
Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said yesterday that the government was awaiting a formal announcement.
The two companies, left to grapple with ambiguity, publicly praised the “partnership” and a “bold” decision last Friday. Neither has since commented on specifics, or elaborated.
US Steel shares closed more than 21% higher last Friday anyway, after surging as much as 26%, signalling renewed investor hope around the acquisition.
Nippon Steel surged as much as 7.4% in trading in Tokyo yesterday, buoyed by similar optimism around the benefits of what may follow, and the potential for reduced dependence on a waning Japanese market.
Shares have since pared the gains and were up just over 2%.
Analysts warned that the scale of the deal and additional investments were not positive for Nippon Steel’s earnings in the short-term.
“It could drain funds that could be used for capital expenditure and lifting shareholder returns,” said Kensuke Togashi, chief strategist at Daiwa Asset Management.
“I suspect today’s reaction reflects the market’s low expectations.”
Trump, whose verdict is the last step in the process of determining whether Nippon Steel’s purchase can go ahead, had previously expressed support for Japanese investment in US Steel, but opposed a full takeover.
Writing on social media in December, he said that he was “totally against the once great and powerful US Steel being bought by a foreign company”, a rare area of alignment with predecessor Joe Biden, who blocked the deal in January, following a review by the Committee on Foreign Investment in the United States.
An approval of a full purchase now would mark a significant about-face.
The statements late last week come as Japan and the United States are also locked in negotiations over trade tariffs.
Japan’s top trade negotiator, Ryosei Akazawa, met with Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer in Washington last week as part of a third round of tariff talks.
That followed a telephone call between Trump and Japanese Prime Minister Shigeru Ishiba.
Trump’s blessing, and billions of dollars of Japanese capital, could bring about a new era for the US steelmaker, once the world’s largest company.
But pressing ahead would also force Nippon Steel to justify to its shareholders an investment with significant constraints, including the potential obligation to keep aging, less efficient and higher cost integrated assets running.
“We are somewhat curious as to why the market sees this in a positive light for the Japanese steelmaker,” said Amir Anvarzadeh, a Japan equity strategist at Asymmetric Advisors Pte.
“We view the acquisition as very costly and potentially a big headache in terms of what they can and cannot do with the US unit, which will be under the US policymakers microscope for many years to come, should the purchase finally cross the line.” — Bloomberg
