Nippon Steel could face growth challenges after U.S. Steel purchase blocked, analysts say

By Noriyuki Hirata and Yuka Obayashi

TOKYO (Reuters) -Japan’s Nippon Steel may need to look at a revamp of its growth strategy after U.S. President Joe Biden blocked its proposed $14.9 billion acquisition of U.S. Steel, but its share price could bounce back in the near-term, analysts said.

Shares in Nippon Steel fell only slightly on Monday in their first trading since Biden on Friday rejected the deal after a year-long review, citing national security concerns.

Biden’s opposition to the deal had been well-flagged and U.S. Steel shares had been trading far below the offer price as a result.

Nippon Steel shares were down 0.5% at 3,165 yen by midday Monday, compared with a 1% fall in broader index. They closed at 3,182 yen on Dec. 30, the final trading day of 2024 on the Tokyo Stock Exchange, which was closed for the remainder of last week for the New Year holiday.

“Some investors may view the failure of the U.S. Steel acquisition as alleviating financial concerns due to the substantial amount of money involved in the deal,” said Yoshihiko Tabei, chief strategist at Naito Securities.

Nippon Steel had not finalised a permanent financing plan for the all-cash deal but said raising equity was among the possibilities.

Tabei, however, noted that uncertainty remains, as achieving medium- to long-term growth will likely be challenging without expanding operations in the U.S.

With U.S. Steel, Nippon Steel aimed to raise its global steel production capacity to 85 million metric tons per year from 65 million tons now, nearing its long-term goal of lifting production capacity to 100 million tons.

The proposed deal has not yet been terminated by the companies even after Biden blocked the purchase.

In a joint statement, Nippon Steel and U.S. Steel called Biden’s decision “unlawful” and said they were left with no choice but to take all appropriate action to protect their legal rights.

Nippon Steel will owe U.S. Steel a $565 million break fee if it is not completed.

Still, some analysts think the failure of the deal could boost shares in Nippon Steel.

“Even if the deal does not proceed, Nippon Steel’s earnings outlook remains unchanged, with significant growth expected in the next financial year starting in April,” Yuji Matsumoto, an analyst at Nomura Securities said in a note.

“Additionally, the removal of financing uncertainty related to the acquisition is likely to support a near-term increase in the stock price,” he said.

Nippon Steel may file a lawsuit against the U.S. government challenging the procedures behind the decision, business daily reported on Saturday.

Nippon Steel President Tadashi Imai said filing a lawsuit against the U.S. government is one of the “important options”, Nippon Television reported on Monday.

Imai told reporters that the U.S. government’s reviewing process and the decisions over its acquisition proposal did not seem properly handled, adding Nippon Steel is “entitled to a proper review,” according to the report.

Imai said that it would not take long for the company to announce countermeasures to the U.S. government’s decision, the report said.

A Nippon Steel spokesperson confirmed it plans to hold a press conference to discuss the U.S. government’s decision, though no date has been set. Kyodo news agency reported the press conference will be held on Tuesday.