DAVOS, Switzerland— The recent acquisition agreement between U.S. Steel and Nippon Steel has ignited a political firestorm in the United States and has raised speculation about a potential surge of similar deals from cash-rich Japanese companies. One such company, Sumitomo Corporation, is considering venturing into this arena.
Masayuki Hyodo, the CEO of Sumitomo, expressed the company’s interest in seeking opportunities in the United States. “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,” stated Hyodo on the sidelines of the World Economic Forum on Monday.
Sumitomo Corporation is among Japan’s five largest sogo shosha, or general trading companies, which are renowned conglomerates that play a significant role in the Japanese economy. Notably, Warren Buffett’s Berkshire Hathaway is a prominent investor in Sumitomo and its counterparts.
The abundance of cash among Japanese companies is noteworthy. Corporate savings have been on the rise since 2000, parallel to increasing profits. These savings have primarily been held in cash. Research conducted by the International Monetary Fund in May 2023 reveals that corporate net savings as a percentage of gross domestic product are much higher in Japan compared to the United States and other developed economies.
Furthermore, Japanese corporate activity is on the upswing, with mergers and acquisitions reaching their highest levels in a decade, as highlighted by Torsten Slok, chief economist at Apollo Global Management.
Given these factors, it appears that Nippon Steel will likely not be the last Japanese company to explore opportunities through acquisitions in the United States.
Sumitomo’s Targeted Segments
Sumitomo, a prominent company, has identified five key segments that it considers as potential targets for its business ventures. These segments include infrastructure, healthcare, new technologies, retail businesses, and agriculture. The company believes that these sectors hold significant opportunities for growth and development.
Sumitomo’s Legacy Interest in Nippon Steel
Sumitomo has a historical association with Nippon Steel, a renowned steel manufacturing company. Recently, Nippon Steel entered into an agreement to acquire U.S. Steel for $55 per share in cash, along with assuming its debt. This transaction amounted to an enterprise value of $14.9 billion.
Hyodo, a representative from Sumitomo, described their stake in Nippon Steel as a relatively small portion acquired in the past. It’s worth noting that until 2019, Nippon Steel operated under the name Nippon Steel & Sumitomo Metal Corporation.
Controversy Surrounding the Acquisition
The acquisition of U.S. Steel by Japan’s largest steel manufacturer has generated discontent among some American politicians. This event could potentially test new U.S. antitrust regulations and President Joe Biden’s commitment to stricter oversight of foreign takeovers. Democratic Senator John Fetterman from Pennsylvania expressed his outrage, stating concerns about national security and questioning the sale of U.S. Steel to a foreign company.
Japan’s Role as a Steadfast Ally
Despite the controversy, it is crucial to recognize that Japan has been a longstanding and reliable ally of the United States. Moreover, it is important to note that the steel mills will not be relocated to Japan, and the technology involved is not highly proprietary.
Hyodo emphasizes the significance of maintaining respectful relations with Nippon Steel and acknowledges the reaction from the United States regarding this transaction. He reassures that both countries are good allies and can mutually contribute valuable assets to the global market, including both the U.S. domestic market and Japan.