NEW YORK – Nippon Steel will buy US Steel for US$14.1 billion (S$18.8 billion) to create the world’s second-largest steel company – and the biggest outside of China – with a key role in supplying American manufacturers and automakers.

The deal ends months of uncertainty over the future of US Steel, an icon of American industry, which has been considering bids since it rejected an offer from rival Cleveland-Cliffs in August.

Nippon Steel’s all-cash offer is significantly higher than the roughly US$7.25 billion Cliffs offered at the time, and a whopping 142 per cent premium to US Steel’s share price on the last trading day before it announced its strategic review.

For Nippon Steel, Japan’s biggest steel producer, the transaction provides a large foothold in the American steel industry when US demand is poised to benefit from rising infrastructure spending. US Steel is a key supplier to the lucrative automotive market in particular.

The Japanese company has been seeking growth overseas as it faces a slowdown in demand at home, combined with a weakening yen and surge in competition across Asia.

US Steel’s shares jumped 26 per cent to close at US$49.59 in New York on Dec 15. Nippon Steel shares fell as much as 6.1 per cent in early trading in Tokyo on Dec 19.

The deal would create a steel giant with plants stretching from Slovakia to Osaka and Pennsylvania.

The combined firm would be the world’s second-biggest steel-maker with more than 86 million tons of capacity, leapfrogging European giant ArcelorMittal, according to a company presentation and Bloomberg calculations. Only China’s state-owned China Baowu Steel Group would have more.

However, the deal is already shaping up as a political lightning rod, after the influential United Steelworkers (USW) union criticized the foreign takeover and urged US regulators to apply close scrutiny. At least three US senators said they oppose the deal.

In a presentation, Nippon Steel said it was expanding its US presence to benefit from a growing population, cheap energy and renewed focus on building infrastructure. The company said it had secured commitments to finance the transaction from Japanese banks.

For American industry, the takeover will mark the end of an era. US Steel traces its roots back to 1901 when J. Pierpont Morgan merged a collection of assets with Andrew Carnegie’s Carnegie Steel.

It has undergone a dramatic shift in recent years under chief executive David Burritt, as its investment focus pivoted away from traditional blast-furnace production of steel from iron ore, towards more modern and less-polluting plants that remelt metal scrap instead.

The company was catapulted into the spotlight in August after revealing it had rejected an offer from Cliffs and begun a strategic review.

The announcement kicked off a dramatic few weeks, as the USW threw its support behind Cliffs’ pugnacious chief executive, while a little-known buyer startled the industry with an even larger offer, before abruptly pulling its interest days later.

Passing regulatory hurdles

The deal requires US Steel shareholder approval, and will need to clear regulators, including the Committee on Foreign Investment in the US, or CFIUS.

Nippon Steel executive vice-president Takahiro Mori said he is confident on clearing regulatory hurdles, pointing to Japan’s strong relationship with the US. “I don’t have any concern about passing CFIUS,” he added.

A handful of US politicians had already started weighing in Monday on the deal – slamming a foreign purchaser of the iconic American company and citing concerns about what the deal means for union workers.

The two companies have agreed that US Steel will keep its name and Pittsburgh headquarters. Nippon Steel also said it will honour all agreements US Steel has with the USW, which has repeatedly said it will not support any foreign bidders.

The union had a transferable right – which it had said it would pass on to Cliffs – to counterbid after an offer for US Steel as part of its collective bargaining agreement.

However, Cliffs in a statement congratulated US Steel on the deal and wished it well with the transaction. BLOOMBERG