Japan's Nippon Steel clinched a deal on Dec. 18 to buy U.S. Steel for $14.9 billion in cash, prevailing in an auction for the 122-year-old iconic steelmaker over rivals, including Cleveland-Cliffs and ArcelorMittal.

The deal price of $55 per share represents a whopping 142% premium to Aug. 11, the last trading day before Cleveland-Cliffs unveiled a $35-per-share cash-and-stock bid for U.S. Steel.

Cleveland-Cliffs' move prompted U.S. Steel to launch a sale process. In a meeting of its board of directors on Dec. 17, U.S. Steel deemed Nippon's offer superior to a sale to Cleveland-Cliffs, which had raised its bid in the high $40-per-share range, the sources said.

ArcelorMittal also pursued U.S. Steel, Reuters has reported. Nippon and ArcelorMittal own a plant in Alabama that produces steel sheet products by processing semi-finished products, or slabs, procured from local and overseas suppliers. They are also investing about $1 billion in an electric arc furnace.

The acquisition of U.S. Steel will help Nippon, the world's fourth largest steel maker, move toward 100 million tonnes of global crude steel capacity, while significantly expanding its production in the U.S., where steel prices are expected to rise as automakers ramp up production following recent deals with labor unions to end strikes.

Nippon did not give any projection on the value of the synergies that will arise from the deal that justify the price it will pay. It said the synergies will come from pooling advanced production technology and know-how in product development, operations, energy savings and recycling.

Nippon is paying the equivalent of 7.3 times U.S. Steel's 12-month earnings before interest, taxes, depreciation and amortization, LSEG data shows. The median in the steelmaking industry is 7 times, and some analysts said U.S. Steel was worth less given that its $774 million takeover of the Big River steel mill in Arkansas in 2021 has yet to pay off in profitability.

"We feel Nippon is overpaying for those assets. This isn’t the technology space. This is still the cyclical steel industry," said Gordon Johnson, analyst at GLJ Research.

U.S Steel shares traded up 27% at $49.92 on Dec. 18 following the deal announcement. Nippon Steel shares had ended trading in Tokyo before the company unveiled the deal.

Cliffs shares jumped 10% to $20.54 in New York as shareholders cheered the company deciding against splashing out on U.S. Steel. Cliffs said it would now press on with "aggressive share buybacks" under a program it previously authorized.

ArcelorMittal shares also rose 5% to 26.23 euros in Amsterdam on similar investor relief.

Union opposes

All of U.S. Steel's commitments with its employees, including all collective bargaining agreements in place with its union, will be honored, Nippon said.

Despite these assurances, the United Steelworkers union, which had endorsed heavily unionized Cliffs as the acquirer, said it is opposed the sale to Nippon because it did not have faith in labor agreements being upheld.

"Our union intends to exercise the full measure of our agreements to ensure that whatever happens next with U.S. Steel, we protect the good, family-sustaining jobs we bargained," United Steelworkers said. A spokesperson did not respond to a request for comment on further details on the union's plans.

Nippon executive vice president Takahiro Mori told Reuters in an interview that the company had operated in the United States for 40 years and that it was confident the transaction would be completed.

"Standard Steel and Wheeling Nippon Steel that we own are unionized companies in the United States, we have a good history of working with unions. We see no regulatory or antitrust issues with the deal," Mori said.

Nippon's joint venture with Arcelor is not unionized.

Pittsburgh-based U.S. Steel's shares had suffered after several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to add a maker of steel used by the automobile industry.

U.S. Steel also supplies to the renewable energy industry and stands to benefit from the Inflation Reduction Act (IRA), which provides tax credits and other incentives for such projects, something that attracted suitors.

The transaction with Nippon is expected to close in the second or third quarter of 2024, subject to regulatory approvals, U.S. Steel said. The Committee on Foreign Investment in the United States, a U.S. panel that scrutinizes deals for potential national security risks, is expected to review the transaction, though most Japanese acquirers complete their deals with few issues.

Citi is financial adviser to Nippon, while Barclays Capital, Goldman Sachs and Evercore are the financial advisers to U.S. Steel.

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