Steel Magnates: Third Point’s Big Bet on US Steel and Nippon’s Merger

The steel industry is heating up—and not just from the blast furnaces! Third Point LLC, the hedge fund run by billionaire Daniel Loeb, has quietly built a 9.9% stake in US Steel (X), signaling this is no “me too” investment. Loeb’s firm is betting big that the long-stalled merger with Japan’s Nippon Steel (5401.T) will finally get the green light in 2025. But is this a “Buy” or a “Bust”? Let’s fire up the furnace and find out!

The Merger That Wouldn’t Die

The proposed $15 billion merger between US Steel and Nippon Steel has been a rollercoaster since 2023. Initially blocked by President Biden in 2024 under national security concerns (a presidential executive order is a big deal!), the deal looked dead. But here’s the twist: President Trump’s new administration ordered a do-over on the national security review in late 2024. That’s why Third Point is doubling down—this merger isn’t dead, it’s just resting.

The merger’s logic is undeniable: Nippon’s cutting-edge carbon-neutral technology pairs perfectly with US Steel’s vast North American infrastructure. Together, they’d dominate green steel production, a $100 billion market by 2030. But will politics let it happen?

Third Point: The Deal’s Cheerleader

Loeb’s fund isn’t just sitting on shares—it’s activist mode. In a leaked investor letter, Loeb called the merger a “no-brainer” for US Steel’s survival. With a 9.9% stake, Third Point can push the company to keep fighting for the deal. But here’s the kicker: US Steel’s CEO, David Burritt, already spent $565 million in breakup fees on a legal battle to revive the merger. That’s real money—enough to upgrade 10 steel plants!

The fund’s bet makes sense. If the merger goes through, US Steel’s stock could double—Nippon’s technology could boost margins from 5% to 25% (yes, you read that right). But if it fails? The breakup fee could still fund US Steel’s turnaround. Win-win? Not quite—more on that later.

The Regulatory Gauntlet

The merger’s survival hinges on Trump’s national security review. Here’s the math:
- Pro-Merger Forces: Nippon’s carbon tech helps US Steel meet Biden’s climate goals and Trump’s “Make Steel Great Again” agenda.
- Anti-Merger Forces: Unions (USW) and domestic rivals (Cleveland-Cliffs) fear foreign dominance.

US Steel’s shares have been volatile, spiking 10% in early 2025 on merger rumors. But analyst sentiment is cautiously bullish—the average price target is $41.28, implying a 7% dip from current levels. However, GuruFocus sees a $29.77 “fair value,” a 33% haircut. Why the disconnect?

The Risks: A Steel Trap?

1. Labor Backlash: US Steel’s union workers are furious. CEO Burritt’s threats to close plants (Gary Works, Mon Valley) have soured relations. A 2026 union contract fight could derail everything.
2. Political Whiplash: Trump’s review could still say “no,” especially if China’s steel dominance becomes a bigger scare.
3. Financial Bleeding: US Steel’s EBITDA has plummeted 53% under Burritt. Even with the merger, can they fix operations?

The Bottom Line: Buy the Dip?

Third Point’s stake is a buy signal, but only if you’re ready for a bumpy ride. Here’s my advice:

• Buy: If you believe Trump’s review goes green. Target price: $50 (20% upside) if the merger closes.
• Hold: If you want to wait for clarity. The $565M breakup fee gives US Steel options even without Nippon.
• Sell: If labor strikes or regulatory rejection spooks the market.

The key stat? US Steel’s $2.3B capital spending in 2023 was a red flag—overbudget and underperforming. Fix that, and the merger’s benefits soar.

Conclusion: Steel Yourself for a Battle

Third Point’s 9.9% stake isn’t just a gamble—it’s a strategic nudge toward reshaping US Steel. The merger with Nippon Steel isn’t just about money; it’s about survival. With a potential $2.7B in promised investments from Nippon and a White House now open to deals, this could be a once-in-a-decade opportunity.

But don’t be fooled: This is high-risk, high-reward. If you’ve got a stomach for volatility, US Steel is a “Hold” with a merger kicker.” If the deal clears, it’s a “Buy”—and if it doesn’t, the breakup fee might just save the day. Stay tuned to the regulatory updates—it’s going to be a hot year for steel!

Final Verdict: Hold for now, but keep a close eye on Trump’s review. This is a stock to own if the merger clears—otherwise, brace for a bumpy ride.

Data as of April 2025. Past performance ≠ future results. Consult your financial advisor before investing.