Japanese steel cos bolster defences against takeovers

TOKYO: Nippon Steel, the world’s second-biggest steelmaker, and two Japanese rivals will spend 260 billion yen buying stakes in each other to bolster takeover defences and strengthen a production alliance.

The purchases will roughly double the amount of cross-shareholdings that Nippon Steel, Sumitomo Metal Industries and Kobe Steel have in each other, the companies said in a joint statement to the Tokyo Stock Exchange on Wednesday.

A five-year rally in commodities prices spurred takeovers in the mining and steel industry, including Mittal Steel’s $38 billion purchase of Arcelor last year. Nippon Steel president Akio Mimura in July said the company wants to bolster defences by raising output and through cross-shareholdings, as ArcelorMittal stated ambitions to grow in Asia.

“They do it because it gives them an extra cushion against the possibility of a takeover bid,” Yuuki Sakurai, general manager of financial and investment planning at Fukoku Mutual Life Insurance, which manages the equivalent of $41.5 billion in assets, said by phone in Tokyo. “This is not a very effective investment, even the company’s board members know it isn’t. It’s like a very expensive lucky charm.”

Nippon Steel gained 0.2% to close at 617 yen on the Tokyo Stock Exchange. Sumitomo Metal Industries fell 0.4% to 449 yen and Kobe Steel dropped 0.6% to 340 yen, compared with a 1.2% decline of the benchmark Nikkei 225 Stock Average.

“Takeovers will happen anytime in the global steel industries,” Kiichiro Masuda, the vice-president of Nippon Steel, said at a press conference on Wednesday. “This additional crossholdings will eventually have the impact of increasing stability of shareholdings and act as a protection against takeovers.”

ArcelorMittal, the world’s largest steelmaker, this month agreed to take over China Oriental Group for at least HK$18.6 billion to expand in China. BHP Billiton, the world’s largest mining company, wants to buy rival Rio Tinto Group, which would make it the largest supplier of iron ore in Asia.

The value of takeover offers in the mining and steel industry globally exceeded $238 billion this year, following on $273 billion the previous year, according to Bloomberg data.

The three Japanese steelmakers on October 30 unveiled a plan to cut costs by sharing expertise and plants, including Sumitomo Metal Industries’ 90 billion yen capacity expansion at its Wakayama mill, southwest of Osaka. The alliance with Sumitomo Metal Industries will probably add about 50 billion yen to Nippon Steel’s annual pretax profit from 2012 when the expansion is completed, Masuda said on Wednesday.