By Svea Herbst-Bayliss
NEW YORK (Reuters) -Hedge fund Third Point owns a “meaningful” stake in U.S. Steel and expects a merger with Japanese rival Nippon Steel to go ahead.
Billionaire investor Daniel Loeb told investors in a letter seen by Reuters that the firm believes U.S. Steel “will complete a planned merger with Nippon Steel based on the industrial logic of the combination.”
Third Point’s stake has not been previously disclosed and comes at a time when investors are trying to game out what lies ahead for the planned merger. U.S. Steel’s stock price jumped nearly 2% on the news of Third Point’s position but pared gains to last trade at $43.92.
Loeb also said that Third Point sees new investment opportunities in credit markets that have been rocked by reaction to Trump administration policies, and had raised its investment in event-driven, activist and risk arbitrage positions that he expects to perform well in choppier market conditions.
While the Biden administration earlier in the year blocked the deal between the two steel companies, U.S. President Donald Trump last month ordered a new national security review, raising hopes some kind of deal may still be worked out.
Loeb wrote that a U.S. Steel tie up with Nippon would also have “benefits to ‘America First’ re-industrialization plans.”
Third Point is also building a position in consumer healthcare company Kenvue, which already has other activist investors pushing for changes, including some possible divestments or even a sale of the entire company.
The hedge fund laid out its case for making money in the credit markets, noting that structured credit investments had returned 1.1% net of fees during the first three months of the year for the firm.
Its TP Offshore Fund lost 3.7% during the first quarter, outperforming a 4.3% drop for the S&P 500 Index.
The Trump administration “seems to have mitigated some of its more aggressive tariff objectives in what we hope is part of its ‘Art of the Deal’ negotiating approach,” the letter said.
A potential rate cut could benefit U.S. residential mortgages but subprime consumers would be vulnerable in the face of declining savings rates and rising unemployment, it added.
This means “trading opportunities in credit are starting,” the letter said, adding that Third Point credit teams were identifying loan issuers and sectors with more exposure to a protectionist trade policy.
Third Point completed its acquisition of fund manager AS Birch Grove LP in March, as it aims to expand the firm’s credit investments at a time when investors want to diversify their portfolios.
(Reporting by Svea Herbst-Bayliss; Editing by Kirsten Donovan)
