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Risks and Uncertainties in Nippon Steel Corp. and Sumitomo Metal Industries Ltd’s merger


Nippon Steel Corp., the world’s second-biggest steelmaker by production, and Sumitomo Metal Industries Ltd., said they will consider merging their operations next year in what would mark the first major consolidation in the nation’s steel sector in a decade. The   Sumitomo Metal Industries Ltd. expected that the Business Integration would bring a sustainable growth that balances quality and scale, as I have targeted, and the new company could become a world-leading comprehensive steel manufacturer with a top-level competitiveness in the world. The new company would contribute not only to the growth of the customers and global economy but also to the creation of the prosperous society. In my opinion, however, there are  still many risks, uncertainties and other factors that will compromise the expected result. The  risks, uncertainties and other factors include: 

(1)   Economic and business conditions in and outside Japan;

(2)   Changes in steel supply, raw material costs and exchange rates;

(3)   changes in interest rates on loans, bonds and other indebtedness of Sumitomo Metals (or the post-transaction group), as well as changes in financial markets;

(4)   Changes in the value of assets (including pension assets), such as marketable securities;

(5)   Changes in laws and regulations (including environmental regulations) relating to business activities of Sumitomo Metals (or the post-transaction group);

(6)   Rise in tariffs, imposition of import controls and other developments in the main overseas markets of Sumitomo Metals (or the post-transaction group);

(7)   Interruptions in or restrictions on business activities due to natural disasters, accidents and other causes;

(8)   Sumitomo Metals being unable to reach a mutually satisfactory agreement with Nippon Steel Corporation on the detailed terms of the possible business combination (or integration) or otherwise unable to complete it;

(9)   Difficulties in realizing the synergies and benefits of the post-transaction group.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.