According to reports, the US government may block Japan’s Nippon Steel Corp. (TYO:5401) from buying United States Steel Corporation (NYSE : X) at $14.1 billion due to national security concerns.
Matthew Slaughter of Dartmouth Tuck School of Business, the Dean of the Tuck School of Business, says that this claim is not supported by any public evidence.
Slaughter, speaking on CNBC’s Squawk Box attributed “domestic politics” as the reason for a possible move to block Nippon Steel from taking over.
US Steel shares rose 3% following the news.
Nippon-US Steel Deal seems to be heading for a failure
US Steel has said that it will explore every legal avenue to complete the deal with Nippon Steel.
Slaughter said that the transaction is unlikely to succeed due to the opposition of US politicians, such as presidential candidate Kamala Harri.
Slaughter disagrees, citing the historical contribution of foreign investment to America’s economic development, job creation, innovation, and growth.
According to him international investments such as Nippon’s purchase typically strengthen the US economic system.
US Steel, Japan’s largest steelmaker, has already made concessions in order to address national security concerns. For example, the majority of its board and core management will consist of US citizens.
Why does Slaughter prefer Nippon buying US Steel
Slaughter supports Nippon’s bid to buy US Steel. He argues that foreign companies bring valuable management expertise, technology, and capital which ultimately benefits American workers.
He cited data that showed in 2021 U.S. subsidiaries of foreign multinationals would employ 7.9 million Americans and contribute to 14% private sector R&D. They also contributed to 17% capital investments and more than 24% total US exports.
These companies also pay their workers around 22% more than average private sector wages in the U.S.
Nippon Steel will invest $1.7 billion into U.S. Steel Plants, which the Pittsburgh based company warned could be closed if not. Slaughter stressed,
We’ve lost our story about what it means to be the leader of the global economy. We’ve been telling that story for decades, and international trade, investment and immigration played a major role.
Analysts remain bullish on US Steel
Wall Street continues to rate US Steel as “overweight”, despite the fact that it will lose over 35% of its value by 2024. The consensus price target is $42, which indicates a potential upside of 40%.
U.S. Steel, despite its disappointing second-quarter results — a 56% drop in net earnings year-over-year to 84 cents a share and a 18% decline in revenues to $4.12 Billion — still outperformed analysts’ expectations. They had forecasted earnings per share of 72 cents on revenue of $4.01 Billion.
Analysts are still optimistic about the future of US Steel.
This post Is Nippon Steel’s acquisition of US Steel really a national security concern? This post may be updated as new information becomes available
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