This week, U.S. Steel's share price experienced a significant surge.
U.S. Steel (X -3.15%) went into agreement for acquisition late last year, but its share performance this year is quite unusual for a company anticipated to have a substantial premium due to the deal.
Nippon Steel's $14.9 billion offer represented a nearly 40% premium to U.S. Steel's share price at that time. However, the $55-per-share proposal faced resistance from numerous quarters. As a result, U.S. Steel shares have remained relatively stable since Nippon Steel made their offer in December last year.
However, U.S. Steel shares saw a significant increase this week, surging roughly 12% by early Friday morning, as per data sourced from S&P Global Market Intelligence.
The proposed steel merger appears logical
Timing seemed to be the major hurdle for this potential alliance. This was largely due to U.S. Steel's renown and rich American heritage, coupled with political factors surrounding election year. However, U.S. Steel's CEO, David Burritt, along with Nippon's management, have been advocating for the proposed merger. Nippon has promised to invest $1 billion to modernize U.S. Steel's facilities in Pennsylvania. Unfortunately, U.S. Steel is currently unable to commit such substantial financial resources.
In a bid to secure union support for the merge, Nippon's executive vice president, Takahiro Mori, wrote to the United Steelworkers union members this week, assuring them that Nippon won't import steel from its overseas mills into the U.S. This also could help defuse tensions among politicians from both parties, who have voiced opposition to the merger.
Recent reports suggested that Pennsylvania governor Josh Shapiro met with Nippon executive Mori to discuss the merger's impact on U.S. Steel's Pittsburgh-area plants and its unions. It appears that support for the merger is growing, as it continues to be reviewed by the Committee on Foreign Investment in the U.S.
Nippon's ownership will not affect domestic steel production in any way. The plan is to modernize, not relocate existing equipment. There are several successful auto plants in the U.S. that are owned by Japanese automakers, and this merge seems beneficial for all parties involved.
Despite U.S. Steel's initial resistance, the potential benefits of the merger with Nippon Steel have led to increasing interest and investment prospects. With Nippon's promise to invest $1 billion in modernizing U.S. Steel's facilities, there are potential opportunities for profitable financing and investing in this transformation.
Given the potential growth following the modernization plan, now could be an opportune time to consider investing in U.S. Steel shares, as future financial performance may reflect positively on the company post-merger.
