US Steel, Formerly the World's Largest Corporation, Enters Agreement to Be Acquired by Japanese Company
US Steel, the once mighty corporation, succumbs to a $141 billion acquisition by Japan's Nippon Steel, marking a significant shift in the steel industry
US Steel has consented to be acquired by Japan's largest steelmaker, Nippon Steel, in a deal worth $14.1 billion. This agreement represents another milestone in the decline of the legendary 122-year-old company, which was previously the world's largest company. As one of the pioneering major conglomerates, it was a powerful representation of American industrial strength.
US Steel is no longer the largest steelmaker in the US, as Nucor Steel surpassed it years ago. CEO David Burritt expressed confidence that the combination is best for all, ensuring a competitive domestic steel industry and strengthening their global presence.
"We believe that the best days of US Steel lie ahead, if we work together," Burritt informed investors during Monday's conference call. According to the terms of the deal, US Steel's operations will maintain its name and will still be based in Pittsburgh. However, there may still be some opposition to the deal.
Earlier this summer, the United Steelworkers union promised to back a proposed offer by another American steel company, Cleveland Cliffs, to purchase US Steel in a cash and stock deal valued at $32.53 a share, which was 40% less than Nippon's all-cash offer. The US Steel board declined the offer and began exploring other bids. On Monday, the union, which boasts 11,000 members at US Steel, criticized the Nippon Steel deal.
USW President David McCall expressed deep disappointment in the U.S. Steel and Nippon deal, stating that it reflects the company's greed and lack of long-term vision. Despite remaining open to working with U.S. Steel to keep the company under American ownership, the union feels that the concerns of its dedicated workforce were disregarded in favor of selling to a foreign-owned company. The union made it clear that it intends to take action to prevent the deal from going through.
"We will also strongly advocate for government regulators to thoroughly assess this acquisition and evaluate whether the proposed transaction aligns with the national security interests of the United States and supports the well-being of workers," the statement read.
According to US Steel's statement, Nippon Steel has a proven history of workplace safety and working closely with unions. It also assures that all union contracts will be upheld and that Nippon Steel is dedicated to preserving these partnerships without interruption.
US Steel was established in 1901 after a merger led by J.P. Morgan and Charles Schwab, two prominent financiers at the time, purchased Andrew Carnegie's steel company and merged it with their holdings in rival Federal Steel. This created the world's first company with a valuation of over $1 billion, which was double the entire US budget for that year. As a result, the deal made Andrew Carnegie the wealthiest man in the world.
During the early 1900s, the company played a crucial role in the United States' rise to global economic power by producing steel for skyscrapers, bridges, dams, automobiles, appliances, and other consumer products. US Steel's dominance led to the creation of antitrust laws as a measure to curb the strategic and financial might of the company and other major corporations like Standard Oil.
Decades of decline
The name of the company became ingrained in popular culture, representing both immense size and industrial power. In "The Godfather Part II," mobster Hyman Roth, illustrating the expanding influence of the mob, informs Michael Corleone, "Michael, we're bigger than US Steel." During the Yankees' unprecedented five consecutive World Series victories, baseball fans who despised the team would often remark that "cheering for the Yankees is like cheering for US Steel."
In recent years, US Steel has lagged significantly behind other American steel companies in terms of steel production and stock market value. The domestic steel industry has dwindled from its previous prominence, with none of the top 10 largest global steel producers hailing from the United States.
"According to longtime steel industry analyst Charles Bradford, the company reached its peak in 1916, and has been declining ever since. Peak output occurred in the 1970s, and it has not made any significant progress in decades. The Pittsburgh Post-Gazette reported on the company's 100th anniversary in 2001, noting that its peak employment of 340,000 occurred in 1943 during World War II, when it played a crucial role in the Allied forces' war efforts."
According to the article, the highest steel output for the company was in 1953, producing 35.8 million tons of steel while competitors in Europe and Japan were still in the process of recovering from the war. In contrast, last year, US Steel only shipped 11.2 million tons of steel from its US operations and had just under 15,000 US employees.
Following its peak, the company began to lag behind emerging competitors, both foreign and domestic. It first trailed behind competitors in Japan and Germany, who had to rebuild from scratch after World War II and utilized new technologies that required significantly less labor and energy.
Using old technology
"What US Steel had was 1940s technology," Bradford said.
On Monday, Aug. 14, 2023, the United States Steel Corp. Clairton Coke Works, located along the banks of the Monongahela River in Clairton, Pennsylvania, US, was captured in this striking image. US Steel experienced a surge in activity after rejecting a takeover bid from rival Cleveland-Cliffs Inc. to form one of the largest steel producers in the world. The company has announced plans to initiate a thorough review of its strategic alternatives. The powerful image was captured by photographer Justin Merriman/Bloomberg via Getty Images.
Justin Merriman/Bloomberg/Getty Images
US Steel, once a symbol of Americas economic might, is now for sale in the bargain bin
US Steel and other steel producers eventually modernized their factories and equipment to match their foreign competitors. However, they continued to primarily use traditional methods, like melting raw materials in blast furnaces, to produce steel. These "integrated" steelmakers began to fall behind the more efficient "mini-mills," which were nonunion competitors that utilized electric arc furnaces to transform old steel scrap into new steel products.
The steel industry is under pressure from global regulators to reduce carbon emissions from the energy-intensive steelmaking process. A leader in the mini-mill technology, Nucor, based in Charlotte, has a market capitalization of $42.5 billion, compared to US Steel's value of just over $14 billion as determined by this deal.
Nucor is the leading steelmaker in America, producing an estimated 20.6 million metric tons of steel per year, and ranking 16th largest in the world. In comparison, US Steel, including its operations in Europe, produces 14.49 million metric tons and ranks 27th in the world for 2022, according to the World Steel Association's data. It wasn't until 2020 that US Steel opened its first electric arc furnace.
Throughout the years, Bradford has consistently pointed out that US Steel and other major US steelmaking companies such as Bethlehem Steel, Inland Steel, and LTV Steel underestimated the competitive threat posed by overseas steelmakers and domestic mini-mills. More recently, steelmakers from China, India, and Korea have surpassed the capacity of US Steel. The three other major US steelmakers have been absorbed in previous mergers and are now part of US Steel's rival, Cleveland Cliffs. In 1991, after 90 years in the Dow Jones Industrial Average, US Steel was removed from the list of the nation's 30 most important companies. At the same time, Walt Disney and JPMorgan & Co. joined the index, signifying a shift in the nation's economy towards information and finance, away from manufacturing.
On Monday, the all-cash offer from US Steel represents a 40% premium on the closing price of their shares from Friday. US Steel shares saw a 27% increase in morning trading, while Nippon's shares experienced a 1% decrease in Japan's trading session, which concluded before the deal was revealed.
This article has been revised to include more background information and any new developments.
