By Jack Denton
DAVOS, Switzerland -- U.S. Steel's agreement last month to sell itself to Nippon Steel has stirred up a domestic political frenzy and raised the prospect of a wave of similar activity from Japan's cash-rich companies. One corporate giant, Sumitomo Corporation, might get in on the action.
"The United States is a very important market for Japanese industries, and yes, we would like to seek opportunities in the U.S. as well," Masayuki Hyodo, the CEO of Sumitomo, told Barron's on the sidelines of the World Economic Forum late Monday.
Sumitomo is one of the five largest of Japan's sogo shosha, or general trading companies, which are historic and sprawling conglomerates that play an influential role in the Japanese economy. Warren Buffett's Berkshire Hathaway is a high-profile investor in Sumitomo and its peers.
Japanese companies are swimming in money -- corporate savings have risen since 2000 along with profits and have largely been held in cash. Corporate net savings as a percentage of gross domestic product are much higher in Japan than the U.S. and other developed economies, according to May 2023 research from the International Monetary Fund.
Japanese corporate activity is also picking up, with mergers and acquisitions at their highest levels in a decade, Torsten Slok, chief economist at Apollo Global Management, wrote in a recent note.
Both of these factors mean that Nippon Steel is unlikely to be the last Japanese firm making a play for a U.S. company.
"We have five segments we see as a target," says Hyodo, naming infrastructure, healthcare, new technologies, retail businesses, and agriculture.
Sumitomo has a legacy interest in Nippon Steel, which last month agreed to buy U.S. Steel for $55 a share in cash, plus the assumption of debt, for an enterprise value of $14.9 billion.
Hyodo described his company's stake in Nippon as "a small share acquired in the past." Until 2019, Nippon Steel was called Nippon Steel & Sumitomo Metal Corporation.
The acquisition of U.S. Steel by Japan's largest steelmaker has caused rancor among some U.S. politicians, and could be a test for new U.S. antitrust rules and for President Joe Biden's promise to get tough on foreign takeovers. Democratic Sen. John Fetterman of Pennsylvania said it was "absolutely outrageous that U.S. Steel has agreed to sell themselves to a foreign company," citing national security concerns.
The flipside is Japan remains a long-time and steadfast ally of the U.S. -- to say nothing of the fact that the mills wouldn't be relocated to Japan and steel technology isn't highly proprietary.
"We respect [the approach] made by Nippon Steel, and we also understand the reaction from the U.S.," says Hyodo. "We are good allies and we can deliver good value for the whole world, including the domestic market of the U.S. and also Japan."
Write to Jack Denton at jack.denton@barrons.com
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(END) Dow Jones Newswires
January 16, 2024 13:25 ET (18:25 GMT)
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