There has been a myriad of opinions expressed in opposition to the merger. These positions included concerns expressed by organized labor, congressional views about the impact on national security, and lastly from other US Domestic producers who would have preferred Cleveland Cliffs or themselves to have made the acquisition. None of these points of view addressed the most subtle aspect of the proposed deal which is the potential impact on steel distribution.
The traditional Japanese business model vertically integrates many aspects of the business spectrum; banking, transportation, raw materials, scrap, international trading and distribution. One steel industry veteran commented on the distribution aspect from a historical perspective.
“Historically there were many examples of failed partnership efforts by some domestic steel mills in this space – National Steel (National Steel Service Centers) Inland Steel (Ryerson), USX (US Steel Supply, Straight Line) and Duferco Farrell (Baldwin Steel) to name a few examples. None of these partnership efforts are viewed as successful by most historical observers. The segmented profit center approach made business plans which looked good on paper but failed to execute to their mutual benefit. To be fair, some lessons learned may make current efforts by Nucor and Mitsui with Steel Technologies and SDI with New Process Steel yield better results.
The Japanese have had success in their investments in US based distributors and mills. Long term, service centers with USX distribution relationships may have to consider bracing themselves for change. This is not an impulse buy for Nippon Steel. It is safe to assume that this is part of a long term strategy in which they envision significant performance from their US segments enough to justify the 40% premium paid for USX.
The international automotive transplants will also no doubt play a larger role in this process as a key market segment for all US producers. It is possible several US based Japanese owned distributors may play a larger role in the Nippon owned investments particularly at the Calvert and Big River locations. It also would not be surprising to see Nippon make an acquisition of one or several major US distributors as part of their long term plans.” a former steel industry veteran commented.
Key Points
- To consider the impact of the acquisition on both the the distribution segment and their manufacturing clients
- To recognize the difference in approach of some Japanese companies in their management of distribution channels
All of the above is speculative in nature. It is, however, food for thought about the proposed acquisition and its potential impact on the the steel distribution community.
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