Nippon Steel unfazed by US golden share

TOKYO — The US government’s ownership of a golden share in US Steel will not block Nippon Steel from taking any management action that it deems appropriate, the Japanese steelmaker’s CEO said on Thursday.

Eiji Hashimoto spoke to the media in Tokyo a day after Japan’s top steelmaker concluded its $14.9bn acquisition of US Steel, confirming Nippon Steel had agreed to give Washington unusual power to help end its 18-month battle to reach a deal.

The national security agreement signed with US President Donald Trump’s administration hands Washington a non-economic golden share and gives the president the authority to name a board member.

“We won’t be constrained in pursuing anything we aim to do,” Hashimoto said, when asked how the golden share would influence management freedom.

“We retain sufficient managerial freedom,” he said, noting that the Japanese company accepted the US government’s desire to oversee the execution of the investment and proposed a golden share structure as a straightforward way to reflect it.

Unusual step

The ultimate agreement with the US government represents an unusual level of control conceded by the companies to save the deal, after a rocky path to approval spurred by high-level political opposition.

“We struggled to complete this deal, but our global strategy is starting to take shape,” Hashimoto said, adding that the company will consider further global expansion.

The golden share gives the US a veto over a potential relocation of US Steel’s headquarters from Pittsburgh, a transfer of jobs overseas, a name change, and any potential acquisition of a rival business.

“We have spent ¥2-trillion (about $14bn) to acquire US Steel ... We have no intention of relocating its headquarters or shifting production or jobs overseas,” Hashimoto said.

The agreement also stipulates that Nippon Steel must make capital investments of about $11bn in the US by 2028.

Hashimoto said he saw no issue with that requirement because the company intended to expand investments beyond its current plans. The Trump administration’s policy shift towards imposing higher tariffs had increased the strategic importance of the US Steel acquisition, he said.

“This deal is not only a necessary and effective strategy to restore our company to the number one position globally, but also the only path for US Steel to revitalise and grow,” Hashimoto told reporters.

“Nippon Steel has a limited track record operating a business of this scope,” analysts at Jefferies Group wrote in a client note earlier this week.

Capital raising possible

The golden share “could narrow Nippon’s flexibility as it is contemplating spending (¥5-trillion-¥10-trillion) on decarbonisation.”

Activist investor Strategic Capital is proposing that executive remuneration be clawed back if the company books impairments. Nippon Steel opposes the proposal.

“I am concerned that Nippon Steel’s final goal was to acquire US Steel, not boosting returns to shareholders,” said Tsuyoshi Maruki, CEO of Strategic Capital.

Nippon Steel will consider a capital-raising among other options as it weighs how to fund its US investment plans, vice-chair Takahiro Mori, the lead negotiator of the deal, said.

“The increased leverage from acquisition debt remains a clear credit negative,” Roman Schorr, senior analyst at Moody’s Ratings, said in a report.

“However, this is counterbalanced by the benefits of expanding into the US market, which enjoys tariff protection. US Steel brings a strong asset base after recent investments, complementing Nippon Steel’s portfolio.”

The company’s investments and cost control would be closely watched, Schorr added.

The US government’s approach to the deal has been “a purely political and symbolic throwback,” said Weston Nakamura, a markets analyst who publishes the Across the Spread newsletter.

“I don’t see it hindering any operations it hasn’t already set out. But the one that might be of friction in the future is if Nippon Steel tries to acquire another US steelmaker,” he added.

Nippon Steel shares rose 2.5% in afternoon trading to ¥2,772, outperforming the broader Nikkei 225 index, which fell 0.9%. 

Reuters