Steel Stories by U. S. Steel Podcast - The Best Deal: U. S. Steel and Nippon Steel Unite

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Well, welcome to a special edition of Steel Stories. I'm your host, David Kirkpatrick, and today we have an extremely interesting episode with two huge world leaders of the steel industry who are doing an important deal together, and they're here to talk about it. First, we have Takahiro Mori, who is Vice Chairman of Nippon Steel and oversees its global operations. And next to him is David Burritt, who is CEO of US Steel. Let's just start—I'd like to hear a little bit about you guys. Tell the audience a little bit about who you are and what your role is.

Wow, wow, that's great. Okay, thank you for telling us that. Dave?

Well, hi. I'm David Burritt, President and CEO of US Steel. We have operations in Europe as well as the United States. We have a North American flat roll business, a tubular business, a mini mill business, and then a business in Europe in Slovakia.

Nippon Steel is planning to buy US Steel. We're here to talk about that deal and help our viewers and listeners understand it better. So maybe, Dave, you could start by telling us: why did US Steel want to sell the company in the first place?

You know, that's a really good question. We actually get that question a lot, but I can tell you we weren't looking to sell the company. That was not on our radar screen. We had been performing extraordinarily well. You know, if you look at the business some 10 years ago, we'd been losing an average of $2 million a day for five years, and then we made as much as $1 million a day with all-time records in safety and quality and delivery. And so we really felt good with where we were. And we were climbing this mountain of capex, putting in the best mini mill in the world with Big River Steel. And as we climbed that mountain of capex with a whole bunch of spend, we're coming over the hill, and then we got some unsolicited bids. And so what we decided was that we'd run a process—we had a strategic process, which would include maybe we keep running the company. Our duty, our fiduciary duty, our legal obligation is to do what's in the best interest of stockholders. So as it turns out, what's in the best interest of stockholders is to sell to Nippon. We have a duty to do what's right for our stockholders.

So, Mori-san, tell us a little bit about why Nippon Steel wants to buy US Steel.

Well, that's a wonderful explanation. So, Dave, what are the primary benefits of this partnership for US Steel and its stakeholders?

You know, I'd say this deal checks all the boxes. Well, obviously it's great for the stockholders, but you go across every single stakeholder—you can pretty much check the box on every one of these. Customers love this opportunity for us because we'll be able to make steels to advance—advanced high-strength steels that we like to dream about, with the additional investment that's forthcoming from Nippon Steel. It's not just good for stockholders and customers but also for our employees. You think about this—investing in the US basically provides greater opportunities, greater job security, which we haven't always been able to provide because of the deep cyclical nature that we go through in the United States. So we actually have somebody that has deeper pockets, a higher investment grade than what we have, and so it really positions itself very well. They can borrow money more cheaply, do more things, lower our weighted average cost of capital, you know, in finance speak. And then of course, when you think about for the United States, what a great thing this is, because it actually strengthens national security, it strengthens economic security, and I already mentioned that it strengthens job security. This is remarkable—how often do we have technology transfer to the United States with the know-how that Nippon brings? They are the best of the best with the integrated mills that are the best of the best, with things like decarbonization and carbon capture—they've been doing this stuff for years. They are clear experts, and of course that means it's great for the planet. So you go through all these—it's great for the planet, it's great for the country, it's great for our employees, it's great for our customers, it's great for the stockholders, and where we live and work, it's going to be great for those folks as well, because it creates greater stability and more investments in the communities. So it's a pretty special deal. The more you learn about this, the more you get the truth about this deal, you go, oh my gosh—if we had to invent a transaction for the United States and somebody in Asia, this would be the deal. And you'd say, well, wouldn't it be really cool if we had a company that had the United States in its name, and wouldn't it be cool if we had a company that had Nippon in its name, bring them together—and oh, by the way, we'd like technology transfer to the United States, which is usually different—usually we're transferring technology outside the United States. So more investment, more growth, more profits, more profit sharing, secure futures that we never envisioned. So there's a much brighter future for all the stakeholders that we have. It's a very special deal. It is the best deal we could have possibly imagined.

I want to ask you both this, but Mori-san, let me ask you first. What do you think people most fail to understand about this deal?

We're going to talk a little bit more about decarbonization a little later. But Dave, is there anything you would add—things that people just don't get about this deal that they should?

I get back to kind of the theme we want people to really understand here, which is just get the truth. Because the more you learn about this deal, the more you'll come to realize it is so good for every one of the stakeholders.

Well, Mori-san, you oversee all the global operations of Nippon Steel, and you've done a lot of other international acquisitions and partnerships. What have you learned from some of those deals that might be helpful here?

Mori-san, the United Steelworkers Union—they have expressed some opposition. How have you addressed their concerns?

So, one of the biggest areas of confusion has been around Nippon's statement that jobs will be preserved through September 1st, 2026, which is the expiration date of the Basic Labor Agreement with the USW. Can you clarify what that means?

Tell us how Nippon Steel approaches labor relations in its existing operations and how you plan to apply those principles to manage relationships with US Steel's unionized workforce.

Also, can you make specific commitments to reassure union employees that their jobs, wages, and benefits will be safeguarded under Nippon Steel's ownership?

Both companies are well known for their values and their concern about safety. So, Mori-san, would you share a little more about Nippon Steel's values and why you think they're important, and why it makes sense to merge with US Steel given its values?

So, Mori-san, Nippon Steel has committed to investing in US Steel facilities. Where will the investments be directed?

Are there any plans to send the production of US Steel overseas once the deal is concluded?

Absolutely. I mean, that's kind of a no-brainer. When you have greater investment in the United States, you actually can grow faster. The pace by which we would grow with Nippon versus without Nippon is very different. We would be spending probably less on the integrated mills, more on the mini mills, and we would be unable to do it as quickly as what Nippon could do. They're experts in integrated mills. I think that's an important point. We are new to the mini mill environment, but that's something that we've been able to demonstrate—we've got probably the best mini mill in the world at this point in time, most modern mini mill, and we're soon to double that capability very soon. But with them, we're so much better than without them. Together, we're better.

So, Mori-san, what's your perspective on the combined company's ability to grow faster?

Well, you know, so now I want to ask a question about decarbonization, which is a really important issue to me and to the world, and you've both touched on elements of it. Let me start with you, Dave. Since both companies have a big commitment to decarbonize by 2050, which is very well stated, how would this deal impact your ability to do that and to decarbonize on that timetable?

Yeah, that's a really great question, David, because our strategy is built on best of both—best of the integrated mills and best of the mini mills. When you go to a mini mill environment, you immediately, upon production, reduce greenhouse gas emissions by between 70 and 80 percent. So we're on a good path there as we grow that business—we get immediate reductions. Versus the integrated mills, when you're working at the integrated mills, of course the facilities are older, but the technology is there. But we don't have the technology that Nippon—and again, they're the best in the world. We've been doing carbon capture since, I think, 2014—you know, a decade or more ahead of other companies. So the investment in the integrated mills will allow us to get to the carbon reduction that we desire, including things like hydrogen—which, by the way, that's a much longer journey because of the expense of hydrogen. Not that we can't do it or the capabilities, but it's going to take longer. And so if you have better investment in that space, you could actually do a lot better for the climate. So best of the mini mill, best of the integrated mill—together we get something that's best for all stakeholders.

And just so our listeners understand—an integrated mill is a blast furnace kind of operation, a big old-fashioned type steel mill, which is so critical because certain things have to be made there, and yet it's so hard to decarbonize. But what you're saying is that Nippon has capabilities that are uniquely able to help move that faster.

That is exactly right. I like to talk about the integrated mills—they make steel by digging it out of the dirt. They make the virgin steel. And the mini mills do it by recycling. So the mini mills have lower greenhouse gas emissions and they're faster. The integrated mills can do the higher-end type steels. Integrated mills—they're here, they've got a lot of life left in them, while at the same time doing the mini mill benefits too. That's where the best of both comes in. And again, to get back to when you're working with a company that's the best at the integrated mills—and they also have some EAFs—that gives us an opportunity to take the best of both, whether it be minis or electric arc furnaces or basic oxygen furnaces. A great collaborative opportunity here with Nippon being a leader in integrated mills.

Yeah, and it's one of the ironies of this climate challenge we face—that steel is hard to decarbonize, but it is absolutely essential for a huge percentage of the climate-friendly infrastructure we need to build: transmission lines and all kinds of things that require steel. We cannot live without steel. So, Mori-san, what's your thinking about how the deal will impact US Steel's ability to decarbonize?

Well, those are all three really important directions to move. So I'd like to ask both of you a little bit about the community involvement that you both have had a long history of. So, Dave, how do you see this deal changing or enhancing your ability to work with communities after the deal is completed?

Better. Better, faster, stronger, more engaged. Well, you have more money, you have people making more money, and they want to engage in the communities. We have a fantastic team in Slovakia that's very heavily engaged in the community. But you go through every one of our plants—whether it be at Mon Valley, they're very close in their community, you know, they're doing things from planting trees to raising funds for the Carnegie Library. You go to Minnesota, the people are heavily engaged in activities. Gary, Indiana—you know, Great Lakes, Granite City, Fairfield—you pick a plant, and these people are very much engaged in the community. But they'd like to do more, and the way you do more is you grow the business, you have more investment, you give them the opportunity with more people, more jobs, more security, more opportunity to do great things for the community. This is where it ends up being the check-the-box win-win-win-win-win. That's a lot of wins.

Mori-san, talk about Nippon's thoughts and approach to working with communities and how that might affect this deal.

So, Mori-san, how do you think Nippon can preserve the legacy and brand of US Steel even as you're integrating your own company's practices going forward?

Wow. Well, we're wrapping up, but I'd just love to invite both of you to share any final thoughts that maybe we could have talked about that we didn't get to, or just big-picture thoughts about the deal. Dave, final thought?

I'd just say—better, faster, stronger. Being the best steelmaker with world-leading capabilities. Our future together is extraordinarily bright, and I look forward to getting to the future faster with you.

Well, thank you both. You both have said a lot of really great stuff. I think our listeners and viewers, if they listen carefully, they have learned an enormous amount about the value and the potential of this deal. I know I have learned an enormous amount, and I want to thank everybody for listening to this special edition of Steel Stories. And I hope you'll join us again on Steel Stories as we continue this podcast series. Thanks so much.

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