Nippon Steel CEO sees no risk to management plans from US golden share
TOKYO :The U.S. government's ownership of a golden share in U.S. 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 at a press conference in Tokyo a day after Japan's top steelmaker closed its $14.9 billion acquisition of U.S. Steel, confirming Nippon Steel had agreed to give the U.S. government unusual power to help end its 18-month battle to reach a deal.
The national security agreement inked with U.S. 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 U.S. government's desire to oversee the execution of the investment and proposed a golden share structure as a straightforward way to reflect it.
The ultimate agreement with the U.S. 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 U.S. government a veto over a potential relocation of U.S. Steel's headquarters from Pittsburgh, a transfer of jobs overseas, a name change, and any potential future acquisition of a rival business.
"We have spent 2 trillion yen ($14 billion) to acquire U.S. Steel ... We have no intention of relocating its headquarters or shifting production or jobs overseas," he said.
The agreement inked with the administration also stipulates that Nippon Steel must make capital investments of about $11 billion in the United States 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 U.S. 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 U.S. Steel to revitalize and grow,” Hashimoto told reporters.
"Nippon Steel has limited track record operating a business of this scope," Jefferies analysts wrote in a client note earlier this week.
The golden share "could narrow Nippon's flexibility as it is contemplating spending (5 trillion yen to 10 trillion yen) on decarbonisation."
Activist investor Strategic Capital is proposing that executive remuneration should 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 U.S. 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 U.S. investment plans, Vice Chairman 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 strategic benefits of expanding into the U.S. market, which enjoys tariff protection. U.S. Steel brings a strong asset base following recent investments, complementing Nippon Steel's portfolio," Schorr said, adding the company's investments and cost control would be closely watched.
The U.S. 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 U.S. steel maker," he added.
Nippon Steel shares rose 2.5 per cent in afternoon trading to 2,772 yen, outperforming the broader Nikkei 225 index, which fell 0.9 per cent.
($1 = 145.1700 yen)
