Nippon's takeover of US Steel seen as likely after Trump comments: Jefferies

Analysts at Jefferies suggest Nippon Steel's acquisition of US Steel is likely to proceed following President Trump's supportive comments, despite some uncertainty regarding the deal's final structure and potential implications. Trump highlighted the deal's potential to create 70,000 jobs and add $14 billion to the US economy, while Jefferies believes the arrangement points towards a full acquisition, possibly involving a "golden share" to maintain national control; however, the increased US steel output could negatively impact other domestic producers.

Analysis

Jefferies analysts assess that Nippon Steel's acquisition of United States Steel Corporation (NYSE:X) is increasingly probable following supportive comments from US President Donald Trump, who framed the deal as a "planned partnership" poised to create "at least 70,000 jobs" and contribute $14 billion to the US economy, with US Steel maintaining its Pittsburgh headquarters. Despite Trump's description, Jefferies posits the development points towards a full acquisition, potentially incorporating a US "golden share" to safeguard national control, a view seemingly corroborated by US Steel's enthusiastic response and commitment to completing the transaction. The deal's finalization reportedly depends on a national security agreement between Nippon and the Trump administration, and media reports suggest Nippon intends to establish a North American board with a US citizen majority. Jefferies notes the transaction aligns with Trump's industrial objectives, involving foreign investment for revitalizing aged US steel facilities, such as a planned $4 billion mill in Pennsylvania, effectively onshoring manufacturing. This influx of investment and subsequent increase in US steel output could lead to lower domestic steel prices and marginally reduce inflation. However, Jefferies cautions that this increased capacity, along with new investments from competitors like Hyundai Steel, may negatively impact other US steel producers in the long term. For US Steel shareholders, Jefferies identifies a $55 per share cash acquisition as the optimal outcome, while acknowledging that a more intricate deal structure might yield a slightly lower value.

Key Decisions for Investors

• Investors in United States Steel Corporation (X) should note the increased likelihood of the Nippon Steel transaction proceeding, with a potential $55 per share cash acquisition representing the best-case valuation, though the final structure could alter this.
• Monitor closely any announcements regarding the national security agreement between Nippon Steel and the Trump administration, as this is highlighted as a critical step for the deal's completion.
• Consider the potential for increased domestic steel production from this deal and new entrants to pressure margins for other US steel producers, warranting a review of holdings in the broader sector.