Written by Noriyuki Hirata and Yuka Obayashi
TOKYO (Reuters) – Japan's Nippon Steel may need to reconsider its growth strategy after U.S. President Joe Biden blocked its proposed $14.9 billion takeover of U.S. Steel, but its share price could bounce back in the near term, analysts said. .
Nippon Steel shares fell slightly on Monday in their first trading since Biden on Friday rejected the deal after a year-long review, citing national security concerns.
Biden's opposition to the deal was clear, and as a result, US Steel shares traded at well below the offer price.
Nippon Steel shares fell 0.5% to 3,165 yen by midday Monday, compared with a 1% decline in the broader index. It closed at 3,182 yen on December 30, the last trading day of 2024 on the Tokyo Stock Exchange, which was closed for the rest of last week for the New Year holiday.
“Some investors may view the failure of the US Steel acquisition as an alleviation of financial concerns due to the large amount of money involved in the deal,” said Yoshihiko Tabe, chief strategist at Naito Securities.
Nippon Steel has not finalized a permanent financing plan for the all-cash deal, but said a capital increase is among the possibilities.
However, Tapai noted that uncertainty remains, as achieving growth in the medium to long term is likely to be difficult without expanding operations in the US.
Through US Steel, Nippon Steel aims to raise its global steel production capacity to 85 million metric tons annually from 65 million tons now, moving closer to its long-term goal of raising production capacity to 100 million tons.
The proposed deal has not yet been finalized by the companies even after Biden blocked the purchase.
In a joint statement, Nippon Steel and US Steel called Biden's decision “illegal” and said they had no choice but to take all appropriate measures to protect their legal rights.
Nippon Steel will owe US Steel a break fee of $565 million if it is not completed.
However, some analysts believe that the failure of the deal may boost Nippon Steel shares.
“Even if the deal does not go ahead, Nippon Steel’s earnings outlook remains unchanged, with significant growth expected in the next fiscal year starting in April,” Yuji Matsumoto, an analyst at Nomura Securities, said in a note.
“In addition, the removal of financing uncertainty related to the acquisition is likely to support an increase in the share price in the near term,” he said.
Nippon Steel may file a lawsuit against the US government to challenge the procedures behind the decision, Business Daily reported on Saturday.
Nippon Steel Chairman Tadashi Imai said filing a lawsuit against the US government is one of the “important options,” Nippon TV reported Monday.
Imai told reporters that the US government's review process and decisions regarding its takeover proposal did not appear to have been handled properly, adding that Nippon Steel was “entitled to conduct an appropriate review,” according to the report.
Imai said it would not take long for the company to announce countermeasures to the US government's decision, the report said.
A Nippon Steel spokesperson confirmed that it plans to hold a press conference to discuss the US government's decision, although no date has been set. Kyodo News reported that the press conference will be held on Tuesday.
