In the first week of February 2025, a Japan-US summit meeting was held. A wide range of topics from security to economic issues were discussed between President Trump and Prime Minister Ishiba. The acquisition negotiations by Nippon Steel for US Steel (USS), which is covered in this column, also appears to have been on the agenda. In this column, based on the results of this meeting, we will attempt to predict potential future developments.

■Acquisition is not acceptable, but investment is fine. How should this be interpreted?

What has been revealed through the media at this point is that Mr. Trump's position is "acquisition is not acceptable, but investment is fine." Whether this was proposed by the Japanese government side after consultation between Nippon Steel and the Japanese government, or whether it came from Mr. Trump's side during the meeting, the details are unclear. However, it is clear that Nippon Steel will not be permitted to hold a majority of voting rights. At the same time, the position that "investment" in the United States is welcome has also been made clear. So, if we were to satisfy the condition that "investment" rather than majority voting rights acquisition (buyout) could proceed, and try to move this matter forward, what kind of schemes and structures would be possible?

In these negotiations, it has been reported that Nippon Steel's financial advisor is Citigroup. Meanwhile, US Steel's advisors are Barclays and Goldman Sachs. It will be fascinating to see what solutions the world's top-tier intellectual groups will find to make this deal successful. Being involved in such a transaction would be an honor that even world-class investment banks may never experience again, while simultaneously creating enormous pressure. As members of the M&A Advisory industry, we would like to examine what solutions might be possible.

■Ignite's Solution: Joint Buyout (Nationalization) of US Steel by the US Government and Nippon Steel, Going Private, and Re-listing Within 10 Years.

Let me start with our conclusion. The most desirable solution we envision is for the US government to jointly acquire US Steel with Nippon Steel (temporary nationalization), realize USS's regrowth through their combined strengths, and then pursue re-listing on the US market. In this scheme, Nippon Steel would first establish a special purpose acquisition company (tentatively named: MAGA Dream, hereinafter "MD"). The US government would subscribe to Class A shares issued by MD and hold 51% of voting rights. Nippon Steel would then subscribe to capital raising through common stock issuance and provide acquisition funding to MD. At this point, their voting rights ratio would be 51 to 49. (The valuation of Class A shares subscribed by the US government and common shares subscribed by Nippon Steel, as well as the voting rights multiple to be granted (100 to 1000 times common shares?), requires detailed analysis and is omitted here.)

MD would then execute a tender offer for US Steel to take it private, followed by a merger between US Steel and MD. Since the merged new USS would also have the US government holding 51% of voting rights, this would not constitute an acquisition by Nippon Steel. While Nippon Steel could only hold 49% of voting rights, having the US government as a joint acquisition partner would provide sufficient rationale for business development in US operations. There is a possibility they could accept this after weighing the costs and benefits.

The most critical elements of this scheme are the shareholders' agreement between both shareholders (US government and Nippon Steel) with a roadmap to IPO, and the capital policy toward IPO. Particularly important would be the sunset clause for the Class A shares held by the US government. A sunset clause refers to provisions that dissolve the dual share structure under certain conditions (such as benefit of time or hitting triggers) and convert to common shares under predetermined conditions. For example, it would be theoretically possible to include a sunset clause where Class A share effectiveness expires if the US government refuses IPO without reasonable justification despite USS being ready for public offering.

The most important aspect of the sunset clause in this scheme is that when USS goes public again on the US market, the US government's holdings would convert to common shares. When this conversion occurs, USS's largest voting rights shareholder would shift from the US government to Nippon Steel, allowing Nippon Steel to continue involvement as the largest shareholder, treating post-IPO USS as an equity method affiliate. The ownership ratio would typically be 33% or more but less than 49%, maintaining veto rights. The new USS would become a publicly listed company jointly owned by Nippon Steel and investors participating in the US market, with no single entity holding a majority of voting rights. This way, USS would not have been "acquired" by Nippon Steel. The final structure would be equivalent to a minority capital increase in USS while maintaining its listing.

Additionally, the US government could potentially realize capital gains by selling the converted common shares at the time of public offering or gradually in the post-listing market. If this scheme succeeds, the new USS's value should exceed its previous level, and if so, the sale proceeds entering the US treasury could be substantial. This could also be a favorable transaction for Mr. Trump, a legendary deal maker who wants to increase tax revenue.


 

■Joint Ventures or Minority Investment Would Be Unacceptable to Nippon Steel.

"Acquisition" is not acceptable, but "investment" is fine. Such discussions occur routinely in M&A Advisory transactions. In such cases, the most common solutions are typically establishing joint ventures or minority investment while maintaining public listing (PIPEs). However, in mega-transactions like this, such possibilities are usually thoroughly discussed in initial stages. It's highly likely that a major divestiture process is proceeding based on the conclusion that such approaches would not provide fundamental solutions. It seems unlikely that returning to the original discussion now would yield a scheme acceptable to Nippon Steel. Of course, there's a possibility this matter could be resolved through such "retreat," but that would hardly be interesting for prominent investment bankers.

■Risks of the Joint Nationalization → Re-listing Scheme

Of course, the nationalization → re-listing scheme also involves various risks. Even if going private proceeds successfully, there's a possibility that USS's revitalization and regrowth cannot be achieved, making it impossible to develop an IPO story. A bigger risk is US political transition. If everything proceeds smoothly, re-listing during the second Trump administration is theoretically possible. However, under normal timespans, this would likely take 5-8 years. If the Democrats regain power by then, all of Mr. Trump's legacies would likely become targets for destruction. The scheme could run aground.

However, fully injecting Nippon Steel's "secret sauce" (specialty steel and premium materials R&D and manufacturing capabilities) developed over more than 100 years of history into USS for revitalization would likely be impossible through joint ventures or minority investment. We believe this joint nationalization and re-listing scheme represents one of the remaining possibilities. Japan should also learn that the United States' operation of dual-class share systems, which enables such ideas, demonstrates the flexibility and scalability of American capitalism.