Why U.S. Steel’s Acquisition Drama Matters

In this podcast, Motley Fool analyst Jason Moser and host Mary Long discuss:

• Reasons behind companies pursuing U.S. Steel.
• How a CEO’s personality can influence investment choices.
• Potential buyers for TikTok.

Then, Motley Fool host Alison Southwick and personal finance expert Robert Brokamp address listener questions about selecting flat-fee financial advisors, managing underperforming stocks, and more.

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A full transcript follows the video.

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This video was recorded on Jan. 14, 2025.

Mary Long: All’s fair in love and sales. You’re listening to Motley Fool Money. I’m Mary Long, joined by Jason Moser. Great to have you here.

Jason Moser: Thanks for having me!

Mary Long: Today, we’re discussing two potential sales: one facing obstacles and another still facing uncertainties. First, the troublesome sale involves U.S. Steel. Originally, this company was set to be acquired by Japan’s Nippon Steel. This acquisition was announced in December 2023 but was blocked by the Biden administration two weeks ago due to national security concerns. Last week, U.S. Steel and Nippon Steel responded by suing the Biden administration to overturn the block. Additionally, they filed a RICO complaint against their rival, Cleveland-Cliffs, along with other parties, including the CEO of Cleveland-Cliffs, Lourenco Goncalves, and the head of the United Steelworkers Union. While the lawsuit against the government was anticipated, the RICO complaint adds a new layer of tension. Why are U.S. Steel and Nippon Steel so eager to merge?

Jason Moser: Like many mergers, the motive comes down to economics. Combining these companies would enhance their market share and competitiveness on a global scale. The term “synergies” always comes up in discussions like this; they believe working together would yield cost savings and allow for continued investment in operations and technology, ultimately expanding their market access. That, I believe, is the key motivation behind their determination to finalize this deal.

Mary Long: Once upon a time, U.S. Steel was the leading steel producer worldwide. What led to its decline? Can you share some historical insights?

Jason Moser: It’s an intriguing story. From analyzing its five-year performance, U.S. Steel has shown good investment returns. However, over ten years, it has significantly underperformed. Despite still generating profits, the broader context is essential. In 1901, under the direction of JP Morgan, Andrew Carnegie’s Carnegie Steel merged with nine other steel companies to form what became the first billion-dollar corporation in history, valued at $1.4 billion at that time. Today, U.S. Steel has about an $8 billion market capitalization, a stark contrast to its $20 billion peak in 2008. The steel industry faces considerable challenges; it’s a highly competitive global market, affected by low-cost imports, particularly from countries like China. Additionally, the cyclic nature of the industry means it is often at the mercy of economic cycles, demanding high input costs and grappling with regulatory issues and trade conflicts. That context helps explain the company’s current predicament.

Mary Long: Nippon Steel aimed to purchase U.S. Steel at $55 per share, valuing the deal over $14 billion. In contrast, Cleveland-Cliffs, the second-largest steel producer in the U.S. by volume, is now proposing an all-cash offer in the upper $30 range per share. Recently, U.S. Steel shares surged about 6-8%, now exceeding $36 each. Despite the data suggesting which deal would be advantageous for shareholders—the Nippon Steel proposal—why did the stock price rise in response to Cleveland-Cliffs’ offer?

Jason Moser: The presence of multiple offers tends to create excitement among investors. With several potential outcomes, this situation could lead to a bidding war. Speculation about which offer might be more successful also plays a role—Cleveland-Cliffs seems to be considering selling their big river steel mill to another competitor, Nucor, if their acquisition is approved. When there are numerous possibilities on the table, investor enthusiasm tends to increase.

Mary Long: Cleveland-Cliffs CEO Lourenco Goncalves held a press conference yesterday where his remarks, particularly about Japan, drew much attention.
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Understanding the Influence of CEO Personalities on Investment Decisions

Evaluating CEO Character: An Analysis of Cleveland-Cliffs’ Goncalves

When discussing media relations and the impact of CEO personalities, it’s crucial to examine figures like Lourenco Goncalves, the CEO of Cleveland-Cliffs since 2014. His pursuit of U.S. Steel in 2023 has recently drawn attention to his reputation, which some describe as overzealous. A recent Wall Street Journal article characterized him as a “pugnacious, arm-twisting CEO,” while a Fortune piece likened him to the “Elon Musk of Steel.” One must wonder: how does such a personality influence investment decisions?

Jason Moser: Absolutely, a CEO’s personality can play a role in investment choices. Although it isn’t the sole factor, the characteristics displayed can represent certain risks. When I think about this topic, Under Armour springs to mind as a prime example. Kevin Plank, the founder and former CEO, had a significant impact on the company’s image and strategy. While he inspired confidence and was committed to making Under Armour successful, his polarizing public statements often clouded investor sentiment. Statements about wanting to overshadow Nike were bold, but they may have set unrealistic goals. Over the last decade, Under Armour seems to have struggled partly due to these leadership decisions.

Contrastingly, Elon Musk at Tesla embodies a similar volatility, yet his brash approach has generally benefited shareholders. It demonstrates that personality can be both an asset and a liability in business.

Mary Long: Reflecting on Goncalves’ track record, it’s intriguing how his assertive stance has evolved. Initially, he asserted, “I get what I want,” even as he approached the Nippon Steel deal cautiously at first. His doggedness is noteworthy but comes with inherent risks. A rival in this scenario, Nucor, is the largest U.S. steel producer by volume, and it’s likely that investors overlook companies like these. Unlike technology stocks which capture more attention, steel firms like U.S. Steel, Nippon Steel, Cleveland-Cliffs, and Nucor focus on essential materials for production. Currently, Nucor trades around eight times free cash flow and offers a 2% dividend yield. Do any of these companies stand out to you?

Jason Moser: Steel as an industry might seem dull and fails to attract attention. Personally, I don’t typically invest in materials companies due to their cyclical nature, high capital requirements, and fluctuating costs. However, such firms do present unique value opportunities. While I tend to prefer long-term holdings, these materials companies require a keen understanding of market entry and exit points for value investing, which demands more effort than I’m willing to invest.

Mary Long: Shifting gears, let’s discuss a timely topic: TikTok. The Supreme Court is poised to decide whether to enforce a law that could result in a forced sale or ban of TikTok in the U.S. This government directive towards a foreign entity raises unique questions. Are there historical precedents for these types of government actions?

Jason Moser: The current situation is indeed unique. While there have been past instances involving other companies, such as sanctions against Russian firms related to the Ukraine conflict and restrictions on Huawei beginning in 2020, TikTok’s case stands out. The FCC also placed restrictions on ZTE due to national security issues in late 2022. History shows that while not common, governmental intervention with foreign companies has precedent.

Mary Long: If TikTok faces a ban, projections indicate that more than half of its ad revenue could shift to Meta and Google. How significant would this be for either company?

Jason Moser: Current estimates put TikTok’s annual ad revenue around $11 billion. While a boost in revenue would certainly help both Google and Meta, it pales in comparison to their existing earnings—$340 billion for Alphabet and $156 billion for Meta over the past year. So while it would add nice incremental revenue, it would not drastically change their financial landscape.

Mary Long: Various names have emerged as potential buyers for TikTok amidst this turbulence. Recently, reports suggested that Chinese officials are contemplating a sale to Elon Musk, which has been dismissed as “pure fiction.” However, Musk’s interest indicates he’s not the only one considering acquiring TikTok amidst these developments.

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Potential Buyers Emerge for TikTok Amidst Controversy

Tanks, Kevin O’Leary, and billionaire Frank McCourt have presented a formal offer to acquire TikTok, surprisingly without its algorithm. Their consortium, known as Project Liberty, positions itself as the people’s bid for TikTok and aims to modify the platform to gather less user data. Last year, former Activision Blizzard CEO Bobby Kotick also showed interest in purchasing TikTok, reportedly discussing the financing of such an acquisition with Sam Altman. Additional contenders like Microsoft and Walmart CEO Doug McMillon have likewise indicated a desire to enter the fray. We conclude this segment by making some predictions: which of these potential buyers do you believe stands the best chance of success if TikTok moves forward with selling?

Jason Moser: I find it unlikely that Musk would pursue this acquisition; it appears to be too small a venture in terms of revenue. Nonetheless, TikTok’s valuation estimated to be around $80-$100 billion cannot be overlooked. This transaction would not be straightforward. Considering the notable figures involved, O’Leary’s group could be a viable player. He is a seasoned entrepreneur and appears to have a strategic plan, as do many others. It wouldn’t be surprising if his consortium successfully proceeds with the acquisition. This is a captivating narrative we should closely monitor.

Mary Long: Absolutely, and signs suggest we may soon have more details, especially with the final Supreme Court decision anticipated on January 19. Stay tuned for subsequent updates. Jason Moser, it’s always a pleasure to host you. Thank you for your insights and the time you’ve dedicated to Motley Fool Money.

Jason Moser: Thank you, Mary.

Mary Long: Have questions? Our next segment features Alison Southwick and Robert Brokamp, who will help address listener queries about locating flat-fee financial advisors, cutting losses on underperforming stocks, and more. This episode is sponsored by Curry’s Business. From laptops to mobile contracts, TVs to toasters, Curry’s offers impartial, expert guidance tailored to your budget. Currently, you can save up to 40% on a wide array of products during their January epic deals. Visit business.currys.co.uk or reach out to their UK-based specialist Business Center. Curry’s Business is here to empower your business as we head into 2025.

Alison Southwick: Our first listener question comes from Pat. They’re interested in a one-time consultation with a financial advisor. The Garrett Group was suggested previously, but Pat discovered that there are no flat-fee advisors available in Philadelphia or New York City. That’s quite unexpected.

Robert Brokamp: Indeed, it is surprising.

Alison Southwick: Pat wants to know about alternative recommendations since both cities are significant markets for financial advice.

Robert Brokamp: As long-time listeners know, I generally advocate checking in with a fee-only financial planner every few years, especially before major life events like retirement. The hitch is that many advisors earn their income by managing assets, typically charging around 1% annually. However, there are planners out there who charge hourly, by project, or with a flat fee structure. A good resource to locate such advisors is the Garrett Planning Network. Although Pat has encountered challenges in finding options, I recommend visiting garrettplanningnetwork.com. They have a feature allowing you to search by specialty and filter based on their fee structure, offering hourly or flat-fee options. It may take some persistence, but I encourage thorough exploration of those possibilities in your area. Although there’s a scarcity in Philadelphia, I identified a few planners in New York City. Remote planning options have increased substantially, enabling you to broaden your search nationwide.

Alison Southwick: Our next question arrives from Fred in Florida, who expresses gratitude for the knowledge shared on our show. Fred mentions he has the opportunity to semi-retire by age 55—exciting news! He seeks advice on how this will affect his Social Security benefits. Currently 43 years old, he started contributing at 24 and plans to continue working part-time until he turns 70.

Robert Brokamp: That’s fantastic for Fred. Early retirement is a significant milestone. Social Security benefits are calculated based on the 35 highest-earning years of an individual, adjusted for inflation. If Fred reduces his workload at age 55, this may influence his future benefit amount. Nevertheless, Social Security is structured to provide a higher percentage of income replacement for lower earners. Since Fred plans to work part-time until 70, he’ll likely have a better outcome than if he were to cease working entirely. The key factor will revolve around how much he earns during each year. There are calculators available on the Social Security website that allow for projections regarding potential benefits. One is an online calculator, while another detailed version requires a download. While these won’t definitively answer Fred’s question, they offer valuable insights into the effects of reduced work hours. Furthermore, the timing of claiming Social Security is crucial, as benefits grow for every month they are deferred, up to age 70. Delaying may counteract any reductions due to decreased earnings at age 55.

Smart Strategies for Managing Your 401(k) and Investment Portfolio

When it comes to the timing of your Social Security benefits, it’s a wise move to wait until your full retirement age. For most, like you, that is age 67. If you claim benefits before then and earn above a certain limit, you’ll need to return part of your benefits. In 2025, this income threshold is set at $23,400, which rises to $62,160 in the year you turn 67. These figures adjust yearly for inflation, and it can be easy to exceed those limits. Thus, if you plan to work part-time and earn above these amounts, delaying your claim until age 67 is likely your best option.

Alison Southwick: Our next question comes from Van. He mentions he’s been inspired by your work to enhance the Motley Fool’s 401(k) plan available to employees. Van, that’s commendable! What key features have you found particularly beneficial?

Robert Brokamp: It’s important to focus on three main aspects of a strong 401(k): low costs, quality investment options, and valuable features. Back when I joined the Motley Fool in 1999, our 401(k) left much to be desired. While it had more features than average, the costs were high, and the investment options were mediocre. I recall the S&P 500 index fund in our previous plan charged about 1.5% to 2% yearly, which was exorbitant. At that time, small businesses had limited choices, and the offerings were often lackluster.

More than 20 years ago, a few colleagues and I recognized the need for improvement and intervened. We advocated for better options and formed a committee that met quarterly to address the shortcomings. Initially, we chose a better 401(k) provider, followed by a very strong one five years ago. Although I can’t guarantee your employer will switch providers, they should be open to enhancing features and investment options. Start with the latter; resources like morningstar.com can help you assess fund performance against their benchmarks.

Consider also the ability to contribute to a Roth account. A feature many would appreciate is a side brokerage account, allowing broad investment choices, including stocks, ETFs, and thousands of mutual funds. While this isn’t a standard offering from every provider, reputable ones like Vanguard and Schwab feature it. Ask your employer about adding such an account. While it may incur additional costs, it can be worthwhile based on your preferences.

Finally, understand the costs associated with your current 401(k). Companies often cover some fees, but it’s crucial to know what’s being passed on to employees. Research online about what your provider charges and seek lower-cost options if you’re currently paying a lot. Employers benefit too when their staff has a better 401(k).

Alison Southwick: Next, we hear from JS. They have a Rivian investment, which has seen significant losses. They wonder whether they should offload it or hold on for the long term. What’s your take on trimming investments and reallocating funds?

Robert Brokamp: JS raises vital points. Consider assessing your entire asset allocation, examining your distribution of cash, bonds, and stocks. Evaluate whether you’re too heavy or light in specific sectors, such as large-cap versus small-cap stocks or domestic versus international funds, especially after the last year’s performance discrepancies.

It’s helpful to ask yourself, “If I didn’t own this investment, would I acquire it today?” If the answer is no, consider selling it. Be mindful of tax implications; selling at a loss in a non-retirement account could yield some tax harvesting benefits. As for the proceeds, think about where to reinvest the money. Depending on your retirement timeline, you might prioritize cash for emergencies or funnel it into promising investments you recognize as worth buying today. Many might also consider increasing allocations to small-cap and value stocks or possibly international markets if you feel comfortable with that approach.

Alison Southwick: Now we have a question from Dana in Ohio. Dana has saved money in a 529 plan for her son’s college education, but there are a few thousand dollars remaining. What options does she have?

Robert Brokamp: It’s impressive that you saved adequately for your son’s education, Dana, and that you have funds left over. There are several options available. You might choose to spend the remaining funds. However, keep in mind that any amount you withdraw corresponding to your contributions is tax-free. Consider your alternatives carefully before making any decisions.

Smart Financial Moves: Using 529 Plans Wisely and Preparing for Independence

Understanding the implications of withdrawing funds from a 529 plan is crucial. If you withdraw money for non-qualified education expenses, any growth on those funds will face a 10% penalty. Additionally, if you received a tax deduction from your state for your contribution, you may encounter tax recapture issues since the money was not used appropriately. While this option isn’t generally recommended, it exists if you need immediate cash.

Alternatively, you can transfer the 529 plan funds to a qualifying relative, which could be another sibling or even a cousin. An interesting approach is to leave the funds in the account for future grandchildren, should you have any. However, not all 529 plans allow money to remain indefinitely, so it’s worth checking the specifics of your plan.

A recent option that opened up last year allows you to roll over funds to a Roth IRA for the plan’s beneficiary. This process comes with various regulations: the account must be open for at least 15 years, and you can’t roll over funds contributed in the last five years, along with any growth from those contributions. Ideally, for your son to benefit from a Roth IRA, he needs to have earned income, as annual contributions are capped at current limits. For instance, if you have $10,000 remaining in the 529 plan, and the contribution limit is $7,000 in 2025, you can only roll over that amount in one year, assuming your son has earned at least that much income. The remaining balance can be transferred in the subsequent year.

Alison Southwick: The next question comes from Scott, who plans to move out of his parents’ house soon. Scott expresses enthusiasm about this decision, but wonders how much money he should save up. He currently has around $5,000 saved.

Robert Brokamp: That’s a great start, Scott! There are a few important factors to consider before you take the plunge. First, check your credit score, as landlords typically review this information. If your credit score isn’t favorable, or if you lack a credit history, it might be worth addressing before you find a place to rent.

When you’re ready, landlords usually request a deposit equal to one month’s rent plus the first month’s rent upfront. So, you’ll be paying for two months before you even move in. Ideally, tenants receive their deposit back when they leave, but it’s wise to budget as if you might not. If you take good care of the rental, there’s a chance of getting that deposit back.

Establishing an emergency fund is also crucial; aim for savings that can cover three months of rent at the very least. This cushion can protect you in case of unexpected job loss. Of course, you have supportive parents, which can be helpful during tough times.

Furthermore, moving also brings the often-overlooked cost of furniture. When my wife and I began our lives together as teachers, we furnished our first apartment with the generous help of colleagues who passed down their old furniture. You can find budget-friendly options on platforms like Craig’s List, Freecycle, or Facebook Marketplace. Be mindful, however, that you will need to factor in transportation costs for any procured items.

Finally, clarify with your landlord what expenses you’re responsible for, such as utilities and maintenance for the property. Understanding these details ensures you can appropriately budget for your monthly expenses and prevents any inconvenient surprises once you settle in.

Mary Long: Remember that individuals featured on this program may have a financial interest in the stocks discussed, and the Motley Fool may also have formal recommendations for these companies. Always make investment decisions based on your research. All personal finance content aligns with Motley Fool editorial standards and is not influenced by advertisers. Thank you for joining us. We’ll see you tomorrow, Fools.

JPMorgan Chase is an advertising partner of Motley Fool Money. Additionally, Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Randi Zuckerberg, a former market development director for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, also holds a position on the board. Alison Southwick does not hold any stock in the mentioned companies. Jason Moser has investments in Alphabet and Under Armour. Mary Long has no stock holdings in any of the mentioned companies. Robert Brokamp owns Tesla stock. The Motley Fool recommends Alphabet, JPMorgan Chase, Meta Platforms, Microsoft, and Tesla, while suggesting Garrett Motion and Under Armour. The Fool recommends specific options such as long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool operates under a strict disclosure policy.

The views and opinions expressed herein represent the author’s perspective and do not necessarily reflect those of Nasdaq, Inc.