Nippon Steel To Cut Posco Stake, Go On Offensive

17 May 2016

Nippon Steel & Sumitomo Metal will sell roughly one-third of its stake in South Korean steelmaker Posco, directing the funds toward the company's shift to a global offensive.

Nippon Steel's planned sale of 1.5 million of its 4.39 million Posco shares will shave the stake from 5.04% to 3.32%. The timing of the sale will be determined by "market conditions and other factors," the Japanese steelmaker said Monday. The deal would be worth around 30 billion yen ($275 million) based on Posco's most recent stock price.

Posco owns a 2.5% stake in Nippon Steel. The South Korean company has been streamlining assets, including selling some shares in a construction unit, in response to battered earnings. "We will decide to sell shares if we determine that future business conditions require it, but nothing is definite yet," a Posco executive said Monday.

The relationship between the two companies began nearly half a century ago, when Nippon Steel predecessor Yawata Iron & Steel cooperated with South Korea's government to establish Posco. Nippon Steel and Posco began cross-holding shares in 1998. The stakes were lifted in 2006 in part to ward off the takeover threat posed by European rival ArcelorMittal, which became the world's biggest steel company through a bevy of acquisitions.

But ArcelorMittal reported an epoch-making loss for the fiscal year ended in December. With Chinese steelmakers also hurting due to overproduction, the takeover threat has receded. Nippon Steel will sell off the same number of Posco shares it bought in 2006.

Nippon Steel and Posco also maintain strategic alliances in areas such as raw materials procurement. But last year they renewed the alliance agreement for three years, down from five years.

"Ever since Nippon Steel & Sumitomo Metal was formed, the company has had the leeway to stably manage operations without the tie-up to Posco," said Atsushi Yamaguchi, a senior analyst at UBS Securities Japan.

The relationship also has soured due to Nippon Steel's lawsuit alleging that its South Korean partner illicitly acquired technology to create high-grade steel sheets. Posco settled the lawsuit last year for 30 billion yen.

Steel producers worldwide face difficulties due to the flood of Chinese steel and other factors. Nippon Steel's pretax profit fell 55.5% for the fiscal year ended in March, and the company declined to reveal fiscal 2016 earnings projections.

But both companies see the tough times as an opportunity to bolster their global supply networks. They are adopting a more aggressive stance both domestically and offshore.


Source :