Loss of U.S. Steel stings, but Nippon may be just the right suitor
The nearly $15 billion acquisition of U.S. Steel by Nippon Steel, Japan’s largest steelmaker, is the culmination of a decades-long process of globalization that has undercut America’s industrial base and hollowed out the communities those industries sustained. But, in a rare reversal, in this case the process is attracting foreign investment to bolster American manufacturing, not to offshore it.
In fact, despite outrage from politicians of both parties, this deal may be the best outcome for what was once the world’s largest company, for the Pittsburgh region, and for the United States.
At first glance, skepticism of the deal appears justified. It looks like the loss of an iconic American corporation, and the selling-off of a significant part of a strategically important domestic industry to foreign interests. But, just beneath the surface, another picture comes into focus: a massive bet on American-made steel, and specifically Pittsburgh-made steel, by one of the few companies in the world — from a friendly nation — that can afford to invest heavily in existing assets.
Consider the alternative: a $7.3 billion pairing with Cleveland-Cliffs that U.S. Steel smartly rebuffed, then leveraged into a much more lucrative deal with Nippon. In a Cleveland-Cliffs marriage, nearly all American iron ore would have been held by a single corporation, which is neither economically nor strategically sound. Further, Cleveland-Cliffs and U.S. Steel share a specialty in integrated steel manufacturing — from iron ore to finished steel — that would have resulted in consolidation of operations and jobs.
In this match, the iconic U.S. Steel brand would have been retired, and the company’s headquarters sent to Ohio.
The Nippon deal avoids these bad outcomes. Nippon has few operations
in the U.S., so there are no serious antitrust concerns. For southwest Pennsylvania, it’s unlikely Nippon just dropped $14 billion — a huge 40% premium on the market value — just to shut down the Mon Valley Works. It is more likely that Nippon values owning an American integrated steel operation, maybe even more than U.S. Steel did.
Nippon has also committed to making steel as cleanly as possible. While it’s far too early to know, it’s reasonable to hope Nippon may be open to making the expensive environmental improvements to the Mon Valley Works that U.S. Steel balked at two years ago. To this end, local organizations dedicated to clean air and water should seek to develop a positive relationship with the new firm, based in economic and environmental realism.
The deal comes with risks. While there is perhaps no other country in the world that can be trusted with an American industry more than Japan, Nippon still answers to a foreign government with its own interests. And while the company has pledged to fulfill U.S. Steel’s labor agreements and pension obligations, regulators and unions must be vigilant to ensure those promises are fulfilled.
This is the end of an era for the Steel City, and it’s right to mourn. But it may also be the surprising beginning of a new one.