US Steel has agreed to be bought by Nippon Steel, Japan’s largest steelmaker, in a $14.1 billion deal.
The deal marks the latest step in a gradual decline for the iconic 122-year old company, which was once the largest company on the planet. It was one of the first major conglomerates and a symbol of American industrial might.
But it is no longer even the largest US steelmaker, having been surpassed by Nucor Steel years ago.
“We are confident that … this combination is truly best for all,” said US Steel CEO David Burritt. “Today’s announcement also benefits the United States — ensuring a competitive, domestic steel industry, while strengthening our presence globally.”
“US Steel’s best days are ahead, together,” Burritt told investors at the conclusion of a conference call Monday.
Under terms of the deal, US Steel’s operations will retain its name and will continue to have a headquarters in Pittsburgh. But the deal could still stir opposition.
Earlier this summer the United Steelworkers union vowed to only support a proposed offer by another unionized American steel company, Cleveland Cliffs, to buy US Steel. The US Steel board rejected that offer and started considering other bids.
The union did not immediately respond to a request for comment early Monday. Burritt told investors Monday morning that he had reached out to USW President David McCall and had not heard back, but other executives at the company had spoken to the union about the deal.
“USW members have been through sales and potential sales of employers many times before, and our priority is always to ensure that USW members’ rights are respected and that jobs and benefits are protected,” said the union in a statement in August.
US Steel’s statement said that Nippon Steel has a strong track record of safety in the workplace and working collaboratively with unions, that all union contracts will remain in place and that Nippon Steel is committed to maintaining these relationships uninterrupted.
US Steel was created in 1901 through a merger when a group led by J.P. Morgan and Charles Schwab, two of the world’s leading financiers of the time, bought the steel company owned by Andrew Carnegie and combined it with their holdings in its rival Federal Steel company.
The new company became the world’s first to be valued at more than $1 billion, double the entire US budget that year. The deal made owner Andrew Carnegie the richest man in the world.
In the early part of the last century, the company produced the steel that helped the United States become a global economic superpower, providing steel not just for skyscrapers, bridges and dams, but also for autos, appliances and other products craved by American consumers.
US Steel was so dominant, in fact, that its competitive prowess helped lead to the creation of the nation’s antitrust laws, passed in an attempt to keep the company’s strategic and financial might, and that of the Standard Oil’s, in check.
The company’s name entered popular culture, as shorthand for both size and industrial might. In “The Godfather Part II,” mobster Hyman Roth, explaining the growing reach of the mob, tells Michael Corleone, “Michael, we’re bigger than US Steel.” When the Yankees were winning an unprecedented five straight World Series, those baseball fans who hated the team would say that “cheering for the Yankees is like cheering for US Steel.”
Decades of decline
But in recent years, US Steel has fallen far below other American steel companies in steel output and stock market value.
And the domestic steel industry is a shell of its former self, with no company among the 10 largest steel producers around the globe.
“That company peaked out in 1916,” longtime steel industry analyst Charles Bradford told CNN in August when the bidding started for US Steel. “It’s been downhill ever sense. Peak output was in the 1970s. It’s done nothing for decades.”
According to a story in the Pittsburgh Post-Gazette on its 100th anniversary in 2001, the company’s peak employment of 340,000 came in 1943, during World War II, when it played a critical role in the Allied forces’ war efforts.
The same article said peak steel output came in 1953, when the company produced 35.8 million tons of steel while steelmakers in Europe and Japan were still struggling to recover from the war. Last year, US Steel shipped only 11.2 million tons of steel from its US operations and had just under 15,000 US employees, with 11,000 of those being USW members.
From its peak, the company began to fall behind upstart competitors — both foreign and domestic. First, it fell behind competitors in Japan and Germany, which were forced to rebuild from scratch after World War II and used new technologies that required far less labor and energy.
Using old technology
“What US Steel had was 1940s technology,” Bradford said.
US Steel and other steelmakers eventually followed those foreign competitors to upgrade factories and equipment, but they still largely used the older methods to make steel by melting raw materials such as iron ore in giant blast furnaces.
Those “integrated” steelmakers soon lagged behind so-called “mini-mills,” nonunion competitors that use more efficient electric arc furnaces to turn old steel scrap from discarded cars and other products into new steel products.
The industry itself faces pressures from regulators around the globe to cut carbon emissions from a steelmaking process that is incredibly energy intensive and full of carbon emissions.
One pioneer of this mini-mill technology, Charlotte-based Nucor has a market capitalization of $42.5 billion compared to US Steel’s value of just over $14 billion as set by this deal.
Nucor is also the largest steelmaker in America by output, making an estimated 20.6 million metric tons of steel per year, ranking 16th largest in the world. That compares to 14.49 million metric tons from US Steel, including its operations in Europe, which rank 27th in the world for 2022, according to the World Steel Association.
US Steel didn’t open its first electric arc furnace until 2020.
Bradford said all along the way, US Steel and other US integrated steelmaking rivals with storied names such as Bethlehem Steel, Inland Steel and LTV Steel underestimated the competitive challenge that they faced from overseas and mini-mills at home. In more recent years, steelmakers from China, India and Korea have expanded capacity far beyond US Steel. Those three other integrated steelmakers have already been swallowed up in earlier mergers and are today part of US Steel rival Cleveland Cliffs.
By 1991, after 90 years in the Dow Jones Industrial Average, US Steel was bounced out of that benchmark of the nation’s 30 most important companies. At the same time, Walt Disney and JPMorgan & Co., a Wall Street firm ironically named for US Steel’s founder, joined the index. It was a further sign that the nation’s economy was now focused more on information and finance, not manufacturing.
Monday’s all-cash offer represents a 40% premium on the closing price for US Steel shares from Friday. Shares of US Steel jumped 28% in premarket trading. Shares of Nippon were down 1% in trading in Japan, which closed before the deal was announced.