NIPPON STEEL CORPORATION February 1, 2016 Nippon Steel & Sumitomo Metal Corporation
Nisshin Steel Co., Ltd.
Commencement of Discussions Regarding Making Nisshin Steel a Subsidiary of Nippon Steel & Sumitomo Metal and Regarding Nippon Steel & Sumitomo Metal Su pplying Steel Slabs to Nisshin Steel
This is to announce that under the resolutions of the respective board of directors meetings held today, Nippon Steel & Sumitomo Metal Corporation (President: Kosei Shindo; "NSSMC") and Nisshin Steel Co., Ltd. (President:
Toshinori Miki; "Nisshin Steel") have entered into a memorandum of understanding, pursuant to which both parties will commence discussions (the "Discussions") regarding making Nisshin Steel a subsidiary of NSSMC (the "Proposed
Transaction"), with the target date of the Proposed Transaction being March 2017, and regarding NSSMC's constant supply of steel slabs to Nisshin Steel following the Proposed Transaction.
Matters such as the specific method of the Proposed Transaction, the shareholding ratio of NSSMC in Nisshin Steel and other matters are yet to be discussed, and such matters will be publicly disclosed as soon as an agreement is reached, with the target date for such disclosure being the middle of May 2016.
Furthermore, Nisshin Steel will continue to be a listed company after it becomes NSSMC's subsidiary.
Aim, Purpose, and Other Matters Concerning the Discussions
Aim of the Discussions
By consummating the Proposed Transaction, NSSMC and Nisshin Steel will bring together their respective management resources fostered to date, enhancing competitiveness by creating a synergy effect; further strengthen the position of the NSSMC Group as "the Best Steelmaker with World-Leading Capabilities" with the addition of Nisshin Steel; and enhance sustainable growth and corporate value in the mid- to long-term. NSSMC and Nisshin Steel will also discuss NSSMC's constant supply of steel slabs to Nisshin Steel following the Proposed Transaction, from the perspective of enhancing competitiveness.
NSSMC and Nisshin Steel hope to contribute to customers as well as to the creation and development of a more affluent society through the realization of these measures.
Background and Purpose of the Discussions
Structural Measures Taken by NSSMC and Nisshin Steel, Respectively In the extremely severe business environment described above,
after the business integration of Nippon Steel Corporation and Sumitomo Metal Industries, Ltd. in October 2012, NSSMC likely achieved an integration effect in the amount of 200 billion yen/year, and steadily proceeded to improve both profitability and financial strength.
Nisshin Steel considered structural measures including the rationalization of iron and steel-making by directing management
resources to competitive products and ceasing operations at the Kure steelworks No. 2 blast furnace, as well as steadily implementing its current mid-term plan measures, and proposed to NSSMC constant supplying of steel slabs as an alternative source.
As a result of mutual discussions following the proposal above, NSSMC and Nisshin Steel reached the shared view that it is necessary for them to bring together their respective management resources and create a synergy effect in order to maintain a firm business and profit foundation in this severe business environment.
The Vision That Both Companies Pursue by Undertaking the Discussions NSSMC and Nisshin Steel will pursue realization of the following measures
and targets through the Discussions with a view to further strengthening the position of the NSSMC Group as "the Best Steelmaker with World-Leading Capabilities" with the addition of Nisshin Steel, and thereby enhance sustainable growth and corporate value in the mid- to long-term.
Creating a Synergy Effect by Exploiting the Management Resources of NSSMC and Nisshin Steel Groups
NSSMC's strengths are global top-level technological superiority and product readiness, cost competitiveness centering on iron and steel-making, and capability of being global. Nisshin Steel's strengths are customer and market readiness enabled by meticulous development, marketing, and other activities in line with customer needs. NSSMC and Nisshin Steel would bring together their management resources and create a synergy effect, exploiting their respective strengths. Thus, they would domestically and globally provide better products, technologies, and services that meet customer needs; enhance their profitability; and contribute to the creation and development of a more affluent society.
Promoting Alliance Measures
After consummating the Proposed Transaction, NSSMC and Nisshin Steel would promote various alliance measures in the areas of operation, technology, facilities, procuring raw materials, resources and equipment, and management of manufacturing sites (such as safety, environment, disaster prevention, and maintenance), in addition to implementing the supply of
steel slabs, and establish cost-competitiveness capable of winning global competition.
Maximizing Corporate Value and Improving Recognition by Shareholders and the Capital Markets
Through the Proposed Transaction, NSSMC and Nisshin Steel would enhance their financial strengths by efficient use of funds and assets, ensure healthy and sustainable growth; maximize corporate value in the mid- to
long-term; and endeavor to gain a higher recognition in the capital markets, including from shareholders.
Prospects (Provisional)
NSSMC and Nisshin Steel will immediately commence the Discussions and, once an agreement is reached, will execute a definitive agreement, with the target date being the middle of May 2016. Upon execution, both companies plan to consummate the Proposed Transaction, with the target date being March 2017 after obtaining clearance from domestic and overseas competition authorities and other required procedures are taken.
Schedule of the Proposed Transaction (Provisional)
(1)
(2)
February 1, 2016:
Mid-May 2016 (target):
Execution of the memorandum of understanding regarding the Discussions (today)
Execution of a definitive agreement and
(3)
March 2017 (target):
timely disclosure
Nisshin Steel becoming NSSMC's
subsidiary
(4)
Within Fiscal Year 2019:
Commencement of NSSMC's supply of steel slabs to Nisshin Steel
Method of the Proposed Transaction and Related Matters ( 1) Method of the Proposed Transaction
Shareholding Ratio after the Proposed Transaction (Percentage of Voting Rights Held)
Currently, the shareholding ratio of NSSMC in Nisshin Steel after the Proposed Transaction (percentage of voting rights held) is envisaged to be within the range of 51% to 66%. Both companies plan to discuss the ratio which will be set forth in the definitive agreement. Nisshin Steel will continue to be a listed company after becoming NSSMC's subsidiary.
Acquisition price and related matters
Currently, the domestic and overseas business environment surrounding the steel industry is extremely severe. In such a situation, Nisshin Steel has considered plans to focus on and reinforce the domestic steel sheet business, and plans to rationalize the iron and steel-making process, which involves ceasing operations at the Kure steelworks No. 2 blast furnace; furthermore, it has proposed that NSSMC consider constantly
supplying steel slabs to Nisshin Steel. As a result of subsequent mutual discussions following the proposal above, NSSMC and Nisshin Steel have reached a shared view that it is necessary for them to amass their respective management resources and create a synergy effect in order to overcome this severe business environment, and to maintain and establish a competitive business foundation. As such, NSSMC and Nisshin Steel reached an agreement to commence the Discussions today.
( 1) Severe Business Environment Surrounding the Steel Industry Although the worldwide demand for steel is expected to grow
steadily with the development of the economy and industry in the future and in the long term, currently the global supply-demand condition of steel is rapidly deteriorating due to a decrease in the demand for steel products caused by excessive production capacity centering on Asia, as well as the stalling Chinese economy. In particular, the crude steel production capacity in China has reached a level that surpasses 1.1 billion tons/ year, and China has approximately 400 million tons/year excessive capacity compared to its domestic demand. As a result, the export of steel products from China has currently reached a level that surpasses 100 million tons/year, causing faltering in the market price of steel products centered in East Asia.
Moreover, regarding the stainless steel business in which the respective groups of NSSMC and Nisshin Steel engage, the production capacity of stainless steel manufacturers overseas especially in China has been enhanced, and the respective groups of NSSMC and Nisshin Steel rank lower than the top 10 globally in terms of the scale of stainless crude steel production; as a result, competition in both the domestic and overseas market is ever intensifying. For instance, imports from overseas giants that manufacture stainless steel is increasing in the domestic market.
In addition to the dissolution of the excessive steel production capacity of China being expected to take considerable time, the consumption of steel products in Japan cannot be expected to expand considering, among other things, a decrease in the population. In such an extremely severe market environment, the earnings of NSSMC, Nisshin Steel, and their group companies are rapidly decreasing.
The following methods are contemplated: NSSMC's acquisition of Nisshin Steel's ordinary shares by tender offer under the Financial Instruments and Exchange Act (Act No. 25, 1948), NSSMC's acquisition of ordinary shares issued or disposed by Nisshin Steel by way of third-party allotment, a combination of both, or other methods. Both companies plan to discuss the method of the Proposed Transaction by considering an acquisition by tender offer as the first choice and comparing it with other methods, which will be set forth in the definitive agreement.
The acquisition price (in total) and the type of consideration (cash, securities and others) for NSSMC's acquisition of Nisshin Steel's ordinary shares through the series of transactions described in (1) and (2) above is yet to be determined. Both companies plan to discuss these matters and provide them in the definitive agreement. If NSSMC decides to choose cash as consideration, NSSMC intends
Nippon Steel & Sumitomo Metal Corporation issued this content on 01 February 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 01 February 2016 04:09:57 UTC
Original Document: http://www.nssmc.com/en/ir/library/pdf/20160201_040.pdf
