Japanese steel company Nippon Steel buys US Steel. Cue the antique World War Two analogies. I am not against a foreign company buying a US company. If they can make it more efficient, and generate more profit, then have at it. US Steel has done a very poor job of generating returns for its shareholders.
Here is the stock performance of US Steel ($X)
Not exactly stellar. The company has a 6.3% operating margin, barely above break even. It generates a 3.97% return on assets so Warren Buffett isn’t knocking on the door to buy them. It has negative levered free cash flow, and year over year revenue is down 14%. No one goes on tv and says US Steel is a screaming buy or undervalued. In fact, Nippon barely paid over the market value of the company.
What’s going to happen?
The profits from the US operations of Nippon Steel will flow to Japan. However, the people that work in the US at Nippon Steel plants will still have jobs. They will still be subject to the labor laws of the US. They will still pay taxes in the US.
JD Vance and others have been outspoken against the purchase. It’s grandstanding. They should focus their efforts elsewhere if they really wanted to improve the chances of US Steel to return money to risk holding shareholders.
Isn’t that really the rub? US labor laws? US environmental law? US tax law?
If the US had labor law that encouraged competition and wasn’t slanted in favor of unions, maybe the original US Steel company could have made a better go of it in the US. Unions do not create jobs, they have an economic incentive to kill jobs.
An aside, many union contracts are tied to the minimum wage. When the minimum wage goes up, guess whose pay goes up? The minimum wage is a gigantic job killer and opportunity killer as well.
If the US had regulations over the steel industry that looked at the cost and opportunity costs of those regulations instead of having unelected bureaucrats create heavy handed and irrational regulation, maybe US Steel would have been able to make a better go of it.
If the US instituted a Fair Tax and didn’t distort the decisions made by US Steel executives with poorly formed tax policy, maybe US Steel could have made a better go of it.
If the environmental lobby had been defanged maybe US Steel could have made a go of it. Go ahead, try and build a steel plant in the US north of the Mason Dixon line. You can’t. In Minnesota, they found minerals needed to build EV batteries up in the Iron Range and environmentalists killed it meanwhile mandating that we all buy EV cars. You can’t fix stupid.
US companies buy foreign entities all the time. Why can’t foreign companies buy US companies?
We seem to be okay with buying ammunition from China. We seem to be okay with letting American pharma companies outsource research and development to government funded university research, and manufacturing to China. American Pharma companies are basically big marketing engines. We seem to be okay buying a lot of oil from OPEC countries. There are plenty of other examples.
Why is US Steel sacred other than vote pandering?
Great post Mr Carter! My father built his career post WWII in the steel business and built a fantastic launching pad for our family, my mother and seven kids! Watching the regulatory stranglehold tighten on our home grown industrial strengths has been a sad thing to watch throughout my life. We have truly become an "unserious nation"!
Good take. Here is ours: https://agmetalminer.com/2023/12/19/us-steel-news-nippon-buys-u-s-steel/