Motley Fool Money: Episode Summary – "Steel Bids, TikTok Battles"

Release Date: January 14, 2025

In this episode of Motley Fool Money, hosts Mary Long and Jason Moser delve into two significant corporate battles making headlines: the tumultuous acquisition attempts involving U.S. Steel and the ongoing saga surrounding TikTok's potential forced sale or ban in the United States. The discussion provides investors with in-depth analysis, historical context, and strategic insights into these high-stakes corporate maneuvers.

1. U.S. Steel’s Acquisition Struggle

a. The Nippon Steel Deal Blocked by the Biden Administration

Mary Long kicks off the discussion by highlighting the stalled acquisition of U.S. Steel by Japan's Nippon Steel. Originally announced in December 2023 with a deal valued at over $14 billion (00:05), the Biden administration recently blocked the merger citing national security concerns. This move has precipitated legal action from both U.S. Steel and Nippon Steel against the administration.

b. Legal Escalation and RICO Complaint

In a surprising escalation, the companies not only sued the Biden administration but also filed a RICO (Racketeer Influenced and Corrupt Organizations Act) complaint against rival Cleveland Cliffs and other entities, including Cleveland Cliffs’ CEO Lorenzo Goncalves and the United Steelworkers Union (00:05). This tactic intensifies the conflict, raising stakes beyond the initial merger dispute.

c. Strategic Economics Behind the Merger

Jason Moser explains the economic motivations driving U.S. Steel and Nippon Steel's desire to merge. He emphasizes the importance of market share expansion, global competitiveness, and synergies that could lead to cost savings and investment in technology (01:23). The merger aims to create a more formidable entity capable of navigating the highly competitive and cyclical steel market.

d. Historical Decline of U.S. Steel

Providing a historical perspective, Moser recounts U.S. Steel's illustrious past as the world's largest steel producer since its formation in 1901 by J.P. Morgan. However, over the decades, U.S. Steel has seen its market position wane due to intense global competition, particularly from lower-cost producers in China and other Asian nations, and challenges inherent to the steel industry, such as high input costs and regulatory hurdles (02:25).

e. Competing Bids: Nippon Steel vs. Cleveland Cliffs

Mary highlights the emergence of Cleveland Cliffs as a formidable contender with an all-cash offer in the high $30 per share range, significantly lower than Nippon Steel’s $55 per share bid. Despite the lower value, U.S. Steel’s stock saw a notable increase of 6-8%, now trading over $36 per share, reflecting investor optimism amidst the bidding competition (04:35).

f. CEO Lorenzo Goncalves and Leadership Impact

The discussion shifts to Cleveland Cliffs’ CEO Lorenzo Goncalves, characterized as a "pugnacious and twisting CEO" (06:23). Mary reflects on Goncalves' bombastic media presence and how a CEO's personality can influence investment decisions. Jason acknowledges the importance of leadership traits, citing Elon Musk as another polarizing figure whose persona significantly impacts his companies’ performance (06:34).

g. Investment Perspectives on Materials Companies

Moser shares his personal investment philosophy, expressing a preference for long-term hold strategies over value investing, especially in cyclical and capital-intensive industries like steel. He recognizes the potential for value plays but highlights the challenges, including market volatility and the necessity for timely investment and exit strategies (08:29).

2. TikTok’s Potential Forced Sale or Ban in the U.S.

a. Overview of the TikTok Controversy

Transitioning to the second major topic, Mary discusses the looming Supreme Court decision on whether to uphold a law that could force the sale or ban TikTok in the United States. This unprecedented case pits the U.S. Government against a major foreign tech company, raising questions about national security and digital sovereignty (11:46).

b. Historical Comparisons to Other Companies

Jason draws parallels to past instances where foreign companies faced similar restrictions, such as Huawei and ZTE, who were added to the U.S. entity list and faced bans on sales and imports due to national security concerns (12:32). These examples provide a framework for understanding the potential outcomes for TikTok.

c. Impact on Major Tech Players: Meta and Google

Mary cites an EMarketer projection indicating that if TikTok is banned, over half of its ad revenue would shift to Meta and Google, although Jason contextualizes this shift by comparing it to their vast annual revenues, suggesting the impact, while incremental, may not be significantly detrimental (12:49; 13:14).

d. Potential Buyers for TikTok

The discussion explores various entities purportedly interested in acquiring TikTok. Names such as Elon Musk, Kevin O'Leary, Frank McCourt, Bobby Kotick, and Microsoft are mentioned as potential buyers. Jason speculates that while Musk’s involvement is unlikely due to the deal size, O'Leary’s group, Project Liberty, appears more feasible given their entrepreneurial track record (13:14; 14:16).

e. Future Directions for TikTok

Mary and Jason contemplate the strategic direction TikTok might take depending on the ruling, emphasizing the need for investors to stay informed as the situation evolves. The potential sale could reshape the social media landscape, influencing user data policies and platform operations (14:16).

3. Concluding Insights

As the episode wraps up, Mary underscores the importance of staying updated on these evolving corporate battles, particularly for investors looking to navigate potential market shifts. Jason reiterates the dynamic nature of these industries and the necessity for strategic investment decisions based on comprehensive analysis.

Notable Quotes:

• Mary Long [00:05]: “All's fair in love and sales… We got stories today of two potential sales.”

• Jason Moser [01:23]: “Economics rule… Combining these two companies increases market share… realize some synergies… cost savings involved.”

• Jason Moser [06:34]: “Playing over the years is a track record of saying some controversial things… Elon Musk… very much the same in regard to being a polarizing figure.”

• Mary Long [12:32]: “EMarketer projects that if TikTok is banned, more than half of the ad dollars spent on the platform in the US would go to entities that are currently owned by Meta and Google.”

• Jason Moser [14:16]: “I would be surprised if Musk really wanted to take this on… O'Leary's group could certainly handle it.”

Final Thoughts

This episode of Motley Fool Money provides a nuanced examination of significant corporate maneuvers impacting the steel industry and the tech sector. By dissecting the strategic motivations behind U.S. Steel’s acquisition attempts and exploring the high-stakes implications of TikTok’s potential ban, Mary Long and Jason Moser equip investors with the knowledge to make informed decisions amidst complex market dynamics.

Stay tuned for further updates as these stories develop and continue to shape the investment landscape.

For subscribers and listeners looking to dive deeper into these topics, be sure to tune into the full episode of "Motley Fool Money."