TOKYO — Analysts suggest that Japan’s Nippon Steel may need to reassess its growth strategy after U.S. President Joe Biden blocked its proposed US$14.9 billion acquisition of U.S. Steel, though they predict a potential recovery in Nippon Steel’s share price in the near term.
On Monday, Nippon Steel’s shares fell slightly in their first trading session since Biden’s decision on Friday, which cited national security concerns. U.S. Steel shares had already been trading below the offer price in anticipation of the outcome, while Nippon Steel’s stock declined by 0.5 per cent to 3,165 yen by midday, compared to a 1 per cent drop in the broader Topix index. The company’s shares had closed at 3,182 yen on December 30, 2024, prior to the Tokyo Stock Exchange’s closure for the New Year holiday.
Yoshihiko Tabei, chief strategist at Naito Securities, noted that some investors might see the collapse of the acquisition as easing financial risks, given the significant amount involved in the proposed all-cash deal. Nippon Steel had yet to finalize a financing plan, with equity raising being one of the options under consideration.
However, Tabei highlighted that the long-term growth prospects for Nippon Steel may face challenges without expanding its operations in the U.S. The company had hoped to increase its global steel production capacity from 65 million tonnes to 85 million tonnes annually, moving closer to its goal of 100 million tonnes.
Despite Biden’s decision, the deal has not been officially terminated. In a joint statement, Nippon Steel and U.S. Steel called the decision “unlawful” and vowed to take appropriate legal action. Nippon Steel would owe U.S. Steel a US$565 million break fee if the deal is not completed.
Some analysts believe the collapse of the deal could have a positive impact on Nippon Steel’s stock. Yuji Matsumoto, an analyst at Nomura Securities, stated that the company’s earnings outlook remains strong, with significant growth expected in the next financial year starting in April. The removal of uncertainties related to financing the acquisition could also boost the stock in the short term.
Japan’s Nikkei business daily reported that Nippon Steel may file a lawsuit against the U.S. government to challenge the decision. Nippon Steel President Tadashi Imai confirmed that legal action is one of the company’s options, expressing concerns about the U.S. government’s review process and the handling of the acquisition proposal.
Nippon Steel plans to hold a press conference to address the situation, though the exact date has yet to be confirmed. Kyodo news agency reported that the press conference is expected to take place on Tuesday. — REUTERS
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