US Steel and Nippon Steel Merger Analysis Overview

Lessons learnt from FM

· SMU MPA Notes - Accounting

Overview

An analysis of the proposed Nippon and US Steel acquisition throught merger and acquisition principles learnt during FM Class. 5-Part Series exporing an analysis of a merger.

 

Merger Overview

This combination, which has a transaction value of about $14.9 billion, including debt, is expected to establish a massive steel company that will be well-known in the US, Japan, ASEAN, and India.

The $55.00 per share offer price represents a 40% premium over US Steel's December 15, 2023, closing stock price. (United States Steel Corporation, 2023) The strategic value of US Steel's resources, such as its inexpensive iron ore, small-scale steel production, and finishing capabilities, is reflected in this premium.

 

Proposed Competitive Advantage

Through the combination, US Steel's competitive advantages are combined with the world-class technology of Nippon Steel. It is predicted that this convergence will improve production capacities and broaden the geographic reach, allowing the merged business to successfully serve a larger customer base.

The boards of both firms have unanimously authorized the acquisition. As of 2023, United States Steel Corporation is still awaiting permission, though. Notably, the Biden Administration has voiced resistance because of worries about supply chain resilience and national security.

 

Steps taken for analysis

1. Calculation of Post Merger Income statement

a. Adjustment of US Steel Income Statement Financial Period to match Nippon Steel

b. Adjustment of Nippon Steel Income Statement to USD

c. Calculation of Synergistic effect in cost savings

d. Post-synergistic income statement

 

2. Weighted Average Cost of Capital Calculation

a. Total Market Value

b. Cost of Debt

c. Cost of Equity

d. Calculation of WACC

 

3. Net Present Value of merger

a. Cost of Merger

b. Present Value of Free Cash Flow to firm

c. Present Value of Proposed Cash Flows

 

4. Enterprise Value and Equity Value

 

5. Expected Post Merger Nippon Steel Corporation Stock Price