The deal with Nippon Steel in the US suggests that the new wave of Japanese acquisitions is more than just a fluke.
Japanese giant Nippon Steel Corporation unexpectedly found itself at the center of controversy in December when it announced a major $14.9 billion deal to acquire its iconic US rival United States Steel (USS). Ahead of a general election year, the news sparked a protectionist response from labor unions, several key U.S. lawmakers and former President Donald Trump that continues while it awaits regulatory approval.
For some, Nippon Steel’s offer brought back memories of the late 1980s, when buyers were flush with cash and enjoying the Japanese economy, snapping up such trophy properties as the Rockefeller Center and Columbia Pictures. In an even more attention-grabbing deal, the deal, priced at $55 a share, was worth $20 more than the next highest bid by US company Cleveland-Cliffs at a staggering 14.2% premium.
Was this simply a Japanese version of the opportunistic deals that private equity firms had been making in the US for years, which often resulted in the dismantling and sale of another classic American brand?
Not if you look at the pattern of Japanese acquisitions after the bubble burst, say some observers who have worked with Japanese companies. Deals such as Mitsubishi Chemicals’ purchase of Lucite (2008), Suntory Holdings’ acquisition of Jim Beam (2014) and Mizuho Financial Group’s purchase of Greenhill & Co. last July. for US$550 million, to name three of the most prominent, were strategic acquisitions. is intended to increase the buyer’s presence in its industry, the US and other markets, and not to make a quick profit.
The Greenhill deal has sparked reports Financial Times and in other places where other Japanese companies were hunting on the other side of the Pacific Ocean. Interest in outbound deals had already risen before the Covid pandemic, with more than $77 billion in 2019; Over the past year, the Greenhill deal and now the USS deal suggest that growth is picking up.
“Japanese companies understand that they need to think like global companies,” says Rochelle Kopp, managing director of Japan Intercultural Consulting in Tokyo. “The Japanese market is not growing due to population decline, so they want to participate in markets with higher growth potential than Japan.”
If Nippon Steel is successful in reaching a deal to buy USS, Kopp predicts, it “will likely make significant investments in cash and human resources in USS and will actively seek to expand its business in the United States.” In this case, Nippon Steel’s willingness to pay for USS makes more sense, she argues.
However, Nick Wall, a partner at global law firm Allen & Overy in Tokyo, doubts the deal will be overpriced for the Japanese buyer.
“Yen debt is very available and very cheap,” he notes, and financing for the purchase was announced in late January by three Japanese megabanks: Sumitomo Mitsui Financial Group, Mitsubishi UFJ Financial Group and Mizuho Financial Group. “If the financing price is in the 1% to 1.5% range, then the premium becomes much more reasonable.”
Another factor favoring strategic acquisitions by companies such as Nippon Steel is the value of the yen, which has fallen to the 110-per-dollar range from its longtime level of around 150. “That makes deals more expensive,” Wall says, “but the downside is , for a company focused on the long term, buying a revenue stream in dollars or another major currency is very attractive.”
Another attraction at a time of rising economic nationalism in the United States is the desire to increase its physical industrial presence there. “This is a very important market for these companies,” says Wall, who will want to maintain their share of it in the future.
It doesn’t hurt that these are not Chinese companies, which have borne the brunt of American hostility in recent years.
“I think if you asked the average American whether they would rather have a Chinese or a Japanese buyer, nine out of 10 would say they would prefer the Japanese,” Wall says.
However, Nippon Steel has a drawback: It is asking regulators to approve the USS purchase in a highly charged election year. “There are a lot of political obstacles,” Kopp notes, “and if politics gets in the way of this, it could discourage other Japanese companies from coming to the United States.”