Reina Sasaki and Tsuyoshi Inajima
3 min read
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(Bloomberg) -- Nippon Steel Corp. will consider a capital increase to fund its long-awaited $14.1 billion purchase of United States Steel Corp. and associated investment promises, the company’s vice chairman said on Thursday.
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Takahiro Mori told reporters in Tokyo that the company would not rule out the option of issuing equity, but said Nippon Steel would seek to avoid structures that could hit existing investors and the earnings per share of the combined company. He gave no further details.
“Given the substantial amount of capital required, it is certainly within our scope of consideration. However, as we have explained several times, we are not considering a capital increase that would result in dilution,” Mori said. “If we were to proceed, it would be done within a range that does not affect EPS.”
After an 18-month wait, the Japanese steelmaker won White House approval for its acquisition late last week, when President Donald Trump confirmed he would give the deal his blessing, subject to concessions including $11 billion of investments in the Pittsburgh-based producer and a so-called “golden share” for the US government, giving it a say in key decisions.
According to a note published by Jefferies analyst Thanh Ha Pham, the company also told analysts it would appoint eight of US Steel’s nine board members, though two would be US citizens. Key management positions will also be held by Americans.
He added the company planned to keep its debt-to-equity ratio under control with measures including a 500 billion yen ($3.4 billion) hybrid loan.
Concerns over the dilutive effect of equity issued to fund the deal have been among the factors pulling Nippon Steel shares lower for much of this week, after hopes of growth in the new market initially bumped it higher. The stock rose as much as 5.1% on Thursday before closing up just under 2.3%, after two days in the red.
“Uncertainty over when and how the firm will raise capital is likely to weigh on the share price in the near term,” analysts Atsushi Yamaguchi and Takuya Maeda at SMBC Nikko Securities Inc. said in a note. “We also need to see whether USS earnings actually grow. History tells us that it takes time for benefits from investment to filter through.”
Nippon Steel’s executives have sought to defend the deal’s rationale and the company’s ability to retain management control even with the mitigation measures demanded by the White House.
