Shares of United States Steel (NYSE: X) were up 26% on Monday after the American steel producer agreed to be acquired by Japan-based peer Nippon Steel Corporation (NSC).
In a press release this morning, U.S. Steel said it has agreed to be acquired by Nippon Steel for $55 per share in cash. That price is good for an enterprise value of $14.9 billion (including roughly $800 million of U.S. Steel's debt), and a roughly 40% premium from Friday's closing price. Shares closed today at $49.59 per share.
Combining forces to create the world's "best steelmaker"
The deal effectively caps a strategic alternatives process U.S. Steel announced back in August 2023, spurred after the company received multiple unsolicited proposals ranging from the acquisition of certain assets to the purchase of the entire company.
This agreement obviously means U.S. Steel has opted for the latter; in a separate merger presentation, management argued it provides "certain and immediate value to U.S. Steel shareholders. And over the longer term, they say, the combination will create the industry's "best steelmaker with world-leading capabilities."
What's next for U.S. Steel shareholders?
The agreement has already been unanimously approved by both companies' boards of directors but still requires the approval of both U.S. Steel's shareholders and regulatory authorities. NSC, for its part, will fund the transaction primarily through loans from Japanese banks and has already secured necessary financing commitments.
Assuming all goes as planned, however, the acquisition should close in the second or third quarter of calendar year 2024. U.S. Steel will retain its name, and Pittsburgh, Pennsylvania, headquarters, and NSC has agreed to honor all collective bargaining agreements with the U.S. Steelworkers Union.
As it stands, U.S. Steel shareholders have two options: With the stock trading at a roughly 11% discount to the agreed acquisition price, you can opt for some merger arbitrage by hanging in until the acquisition closes -- at which point you'll be paid $55 per share in cash for each share you own. Or, noting there is some risk that the deal could be derailed (whether by antitrust regulators or shareholders voting against it), you can sell now to realize today's quick pop and put that money to work in any number of other promising stocks.
Either way, investors should keep in mind that if they've owned shares for less than one year, they'll need to account for short-term capital gains taxes on their profits.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
