The steel industry is back in the news again, courtesy of President Trump. The president is leaving his mark on the negotiations between Japanese company Nippon Steel (OTCMKTS: NPSCY) and United States Steel (NYSE: X). So, what does Trump’s stance mean for U.S. Steel stock going forward, and is there ultimately still upside in this historic basic materials company? Below, I’ll provide a brief history of the recent U.S. Steel and Nippon saga and address this question.
History Lesson: Nippon Looks to Buy Iconic U.S. Steel Maker
In Dec. 2023, Japan’s largest steel maker, Nippon Steel, announced its plan to purchase U.S. Steel for $14 billion. On a per-share basis, the company agreed to pay $55. On April 12th, shareholders of U.S. Steel approved the purchase, with 98% of votes in support. It makes perfect sense why they did so. On that date, U.S. Steel’s shares were trading at just $39.50. Completion of the deal would have given shareholders a 39% return from that current price.
However, in early January 2025, President Joe Biden, through the Committee on Foreign Investment in the United States (CFIUS), blocked the deal, citing national security concerns as the justification. This was an unusual decision. It is the only time that CFIUS has prevented a transaction without Chinese ownership or influence ties. U.S. Steel and Nippon have filed multiple lawsuits against this decision. If they win these lawsuits, the deal could go through.
Cut to early Feb., when newly inaugurated President Donald Trump exerts his influence over the steel deal. During a press conference with the Japanese Prime Minister, Trump stated that Nippon would not buy U.S. Steel. Instead, he said it would “invest heavily” in the company. At this point, markets know little about the specifics of the deal. However, there is some information on what Trump and the Japanese government are pushing for.
New Steel Deal: More Questions Than Answers
First off, Trump said that no one can have majority ownership when referring to U.S. Steel. This is important, as without a majority stake, Nippon cannot unilaterally force the company to take any specific action. Japan's Chief Cabinet Secretary stated that Nippon is looking at a new deal proposal. This one is “completely different from anything it has done in the past." Still, Nippon Steel officials have not yet released new comments. Last Thursday, just a day before these new developments, the company’s vice chairman said it had no plans to change the acquisition structure.
What It Means for Shares of Once Industry Titan, U.S. Steel
At this point, there appear to be two different ways things could go. First, Nippon and U.S. Steel could reject the ambitions of their respective governments to rework the deal. At the end of the day, the words from Trump and the Japanese government are just that: words. The two firms have the right to continue their lawsuit against the government and pursue the full, original deal.
I tend to agree with the assessment of the lawsuit that the acquisition of U.S. Steel does not represent a national security risk. Japan is ultimately a United States ally and is the world’s third-largest steel producer. China, which produces by far the most steel in the world, is a known U.S. rival. The acquisition would strengthen U.S. Steel and Nippon, making friendly companies more competitive with Chinese ones. Still, many legal scholars appear to agree that the chances of Nippon and U.S. Steel winning these lawsuits are low. Ultimately, this means that U.S. Steel shareholders likely won’t receive that locked-in $55 per share price.
The much more likely option seems to be that U.S. Steel and Nippon will negotiate with the U.S. and Japanese governments. Without knowing the details of the new potential deal, it feels hard to say that U.S. Steel is significantly undervalued. It is trading at a forward price-to-earnings (P/E) multiple of nearly 20x. That’s in line with competitors like Nucor (NYSE: NUE).
Shares are benefiting from the new 25% tariffs on steel and aluminum, but it's hard to see them really breaking out until the parties resolve this deal. Right now, it's prudent to wait for more information surrounding this deal and what actions U.S. Steel and Nippon will take. A recent $39 price target released by Morgan Stanley sees shares as fairly valued compared to their Feb. 10 closing price.