24/7 Wall St. Insights

• If Nippon Steel does not acquire United States Steel Corp. (NYSE: X), the latter could be in deep trouble.
• Also: 2 Dividend Legends to Hold Forever.

The Biden administration will kill a deal for Japan’s Nippon Steel to buy United States Steel Corp. (NYSE: X). The offer was for $14 billion. On the news that the buyout would be nixed, U.S. Steel’s shares collapsed. Its financial situation is such that it will drop even more.

The Committee on Foreign Investment in the United States, which advises on whether deals involving foreign companies should be completed, may say that the buyout is not in America’s interests. Biden will probably wait until its decision is made public, but that will not change it.

U.S. Steel stock has risen about 40% since the announcement of the deal late last year. Shareholders voted on the transaction in April, believing it would go through.

The company’s quarterly figures have been ugly. In the most recent quarter, revenue dropped from $5.0 billion last year to $4.1 billion. Net income fell to $183 million from $477 million. The company has $2 billion of cash on hand and $4 billion in long-term debt.

Except for the financial disaster in 2009, when steel production collapsed, the trend in steel production has been downward in America since 2006.

Foreign competition has damaged the American steel industry, and there is no reason to think that will go away. Thus, U.S. Steel said that if the Nippon deal falls through, it may shutter factories and lay off thousands of workers. If the company had a bright future, it would leave the Nippon deal behind and operate independently. However, management does not think that will work. So they claim that, without outside investment, the company is in deep trouble.

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