Forging a Big Steel Deal

By Charles P. Alexander

Nippon Kokan forms a partnership with National Intergroup

In the fierce competition between American and Japanese companies, some longtime rivals are suddenly becoming partners. General Motors received final Government approval last month for a joint venture with Toyota to produce small cars in California. Last week the Japanese gained a major stake in another huge U.S. industry: steel. Pittsburgh's National Intergroup agreed to sell a 50% interest in its National Steel subsidiary to Nippon Kokan, Japan's second-largest steelmaker, for $292 million.

National Intergroup, a diversified company that owns a savings-and-loan network besides being the seventh-largest U.S. steelmaker, appeared ready to leave the slumping steel business only three months ago. At the time, it agreed to sell its steel operations for $575 million to U.S. Steel, the industry's leader. But that deal collapsed in March because of antitrust problems in Washington. Says National Chairman Howard Love: "Our original intent was not to get out of steel, but to find a world-class partner who would allow us to stay in it very successfully."

Nippon Kokan was just the kind of partner Love had in mind. Its modern plants are renowned for their high level of automation and computerized controls. Love will remain as chairman of the jointly owned company, which will keep the name National Steel. Nippon Kokan will provide executives and engineers to help streamline the firm's production and improve quality control. National already has highly efficient plants, and the addition of Japanese technology should make the company even stronger.

National first approached Nippon Kokan about a joint venture last July. Love knew that the Japanese company wanted a beachhead in the U.S. In 1979 Nippon Kokan considered buying plants from Kaiser Steel, but backed out after deciding that the facilities were outdated. Last year the Japanese firm broke off negotiations to buy Ford's Rouge Steel unit, mainly because the United Auto Workers would not make wage concessions. This time Nippon Kokan did not insist on a new contract with National's steelworkers, though they make an average of $21 an hour in wages and benefits, compared with $11.60 an hour for their counterparts at the Japanese company.

Nippon Kokan President Minoru Kanao said that the venture is "in line with our long-cherished strategy to obtain a production outpost in the U.S." He wants to sell steel to the Japanese automakers that are building assembly lines in America, but Kanao feared that Washington might raise protectionist barriers. Imports from Japan, South Korea, Mexico and other countries have captured about 25% of the American steel market, and U.S. companies are pressuring Congress to limit the foreign share to 15%.

Competition from imports has made it difficult for the U.S. industry to recover from a deep slump that began during the recession. American steelmakers lost about $2 billion last year. U.S. Steel reported last week that it had a profit of $171 million in the first quarter, but most of that came from its Marathon Oil subsidiary; its steel operations earned only $4 million. National Steel also posted a slim operating profit in the first quarter: $5.6 million on sales of $551 million.

Some steel experts, including Peter Anker of the First Boston investment banking firm, think that the pact between National and Nippon Kokan might lead to more trans-Pacific partnerships. In the white-hot competition of the steel business, picking a strong ally may be a key to survival. --By Charles P. Alexander. Reported by Yukinori Ishikawa/Tokyo and Lawrence Mondi/New York

With reporting by Yukinori Ishikawa, Lawrence Mondi