Transcript
Mary Long (0:05)
All's fair in love and sales. You're listening to Motley Fool Money. I'm Mary Long, joined today by Jason Moser. Jmo, good to have you here. Hey, we got stories today of two potential sales. One that's hit a bit of a snag and another that still got a lot of question marks surrounding it. First up, that sale that's hit a snag is U.S. steel. This is a company that was planning to be acquired by Japan's Nippon Steel. The proposed acquisition was first announced back in December of 2023, but it was blocked by the Biden administration about two weeks ago due to national security concerns. The most recent update is that last week US Steel and Nippon Steel sued the Biden administration for attempting to stop the sale. They also filed a RICO complaint against their rival, Cleveland Cliff and a few other entities, one of them being Cleveland Cliffs CEO Lorenzo Goncalves, who will talk a bit more about down the line, as well as the head of the United Steelworkers Union. This, the suing of the Biden administration was largely expected, but it's this RICO complaint that kind of upped the animosity of this whole situation. So why do that? Why do U.S. steel and Nippon Steel want to pair up so badly?
Jason Moser (1:23)
Well, I think like most mergers, much of this just boils down to economics, right? I mean, like one of my econ professors, investors in college always said at the end of the day, economics rule. And I mean, combining these two companies, I mean that, that increases market share, makes them, you know, a more. A more competitive entity on a global, on a global scale. I mean, you always hear that word synergies, right? I mean that they feel like you can realize some synergies there with the two companies working together. Also probably some cost savings involved, gives them the ability to continue to invest in the business, invest in technology, and then ultimately grow, right? I mean, that gives them access to new markets, expanding their reach into new markets and new customer bases. So my guess is that's the primary reason why they're so set on trying to make this deal.
Mary Long (2:16)
Once upon a time, US Steel was the world's largest steel producer. That is no longer the case. Give us a little history lesson. How did that happen? What happened to US Steel?
Jason Moser (2:25)
This is a fascinating story. Like if you look back at the history of US Steel, I mean, it's funny, you look at the five year chart and this has been an outperformer. It's been a good investment. You stretch that out over 10 years though, and it's Woefully underperformed. Granted, you still made money, so I want to credit where credit's due. But it is, like I said, it's a very interesting story. I mean, I think it goes Back to like 1901, where J.P. morgan ultimately merged Andrew Carnegie's Carnegie Steel with nine other steel companies to ultimately form this corporation. It was the first billion dollar corporation the world had ever seen. I think it was capitalized at $1.4 billion at the time. First billion dollar corporation the world had ever seen. Around $8 billion market capitalization. Today it was 20 billion. As recent as 2008. But it's a business. I mean, steel is difficult, right? I mean, you hear Elon Musk always say space is hard. I mean, yeah, it is. Steel is hard too. The that they face are just very intense, very competitive market on a global scale. You talk about foreign imports from lower cost steel producers, particularly in China and other Asian countries. And then I think it's also very cyclical in nature too, right? It's just kind of goes with the economic cycles. And as a business like this, it faces very high input costs, a tough regulatory environment, trade disputes, tariffs. You put all of that together and I think that's just kind of where we are today with this company.