US Steel shareholders are set to approve a deal Friday for the iconic American manufacturer to be purchased by Japan’s Nippon Steel. But the outlook for the controversial merger has never looked so bad.
The deal is significant, not just for the future of what is still a key US industry central to building everything from cars to appliances to roads and bridges, it is also at the center of election year politics and relations between the United States and Japan, a major ally.
If the $14 billion deal is to close, it needs approval from both the Justice Department, which enforces antitrust laws, and the normally low profile but powerful Committee on Foreign Investment in the United States, made up of members of the President Joe Biden’s cabinet, including the secretaries of Treasury, Commerce, Defense, State, Homeland Security and the Attorney General.
But last month Biden came out publicly against the proposed deal.
“It is important that we maintain strong American steel companies powered by American steelworkers,” he said. “US Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.”
Experts said opposition from Biden and other politicians — both Republican and Democrats — make it unlikely the deal will win approval.
“It’s readily apparent … that electoral politics has overwhelmed any serious evaluation of this deal’s national security risk,” said Michael Leiter, head of the CFIUS and national security practices at law firm Skadden, Arps, Slate, Meagher & Flom. “That’s regrettable, but if you’re a US Steel shareholder it is impossible to ignore when evaluating the diminishing likelihood of a successful sale.”
Impact on US-Japanese relations
Biden and Japanese Prime Minister Kishida Fumio, who is on a state visit to the United States this week, both dodged questions about the deal at a joint press conference Wednesday.
“We understand that discussions are underway between the parties,” said Kishida. “We hope that discussion will unfold in a direction that will be positive for both sides. Japan believes that appropriate procedures based on law is being implemented by the US government.”
“I stand by my commitment to American workers,” said Biden. “I’m a man of my word. I’m going to keep it. And in regards to that, I stand by our commitment to our alliance. This is exactly what we’re doing with a strong alliance as well.”
The U.S., Japan, and the Philippines participated in historic defense talks at the White House. CNN’s Kristie Lu Stout reports from Hong Kong on what has come out of the trilateral summit and how China is responding.
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A senior administration official, in a briefing with journalists before the prime minister’s visit, said the administration’s opposition to the deal shouldn’t hurt relations between the countries.
“The relationship between the United States and Japan is far bigger and more significant than a single commercial deal,” said the official, who spoke on background. “Six weeks ago, the United States gave Mitsui, a Japanese company, a $20 billion deal to build a crane factory here in the United States and replace all our port cranes throughout the United States. Nothing says ‘trusted ally’ like a $20 billion contract with a Japanese company.
“Everybody understands where we are,” the senior official continued. “We’re in a different place fundamentally. And I just think that this single commercial transaction does not define not only the visit, but the relationship.”
Concern for union jobs
In his statement last month, Biden acknowledged that opposition to the deal by the United Steelworkers union was part of the reason for his decision.
“I told our steelworkers I have their backs, and I meant it,” he said.
And a week after Biden came out against the deal, the USW endorsed Biden for re-election.
It’s not just Biden opposing the deal. Numerous Republicans, including Ohio Senator JD Vance, have also denounced the deal, and this week charged that US Steel misled shareholders when seeking support for the deal because it failed “to accurately convey the significant political obstacles and regulatory risks the merger faces.”
Shares of US Steel stock plunged Thursday in the wake of Biden’s comment, closing 23% below Nippon’s $55 a share asking price. It makes shareholder approval a virtue certainty, said Phil Gibbs, steel analyst with KeyBank, even if the deal is eventually blocked.
“The stock was trading at $20 a share not long ago. Of course they they think it’s a great deal,” he said.
What happens next?
If the deal ends up being blocked, it’s not clear what happens next.
The nation’s automakers wrote to the White House after Biden announced his opposition to the Nippon-US Steel deal to say a Cleveland Cliffs-US Steel deal would place 65% to 90% of steel used in vehicles under the control of a single company. It said it therefore supported the Nippon deal for US Steel instead.
United States Steel Corp. Edgar Thomson Plant in Braddock, Pennsylvania, U.S., on Saturday, Sept. 12, 2020. A narrow win in Pennsylvania helped decide the presidency for Trump in 2016, ending a two-decade-long winning streak in the Keystone State by Democratic presidential candidates. Democratic Presidential candidate Joe Biden leads the president in Pennsylvania by 4.3 percentage points, according to RealClearPolitics’ average of recent polls. Photographer: Justin Merriman/Bloomberg via Getty Images Justin Merriman/Bloomberg/Getty Images
US Steel rival Cleveland Cliffs, the nation’s other major unionized steelmaker, tried to buy US Steel last summer, only to have its $32.53 a share cash-and-stock offer rejected by the company. And Gibbs said despite the support such a deal would have from the USW, it’s not clear it would be able to win approval from antitrust regulators.
“American jobs … rely on a fair and competitive steel industry too,” the auto industry trade group said in its letter to the White House. “If the administration has concerns about the Nippon Steel deal, it must seriously consider alternative outcomes. One option that should not be on the table is an arrangement that creates a market concentration of domestic steel production in a single company.”
Different ways to make steel
Neither US Steel nor Cleveland Cliffs are the largest American steel company today. That would be Nucor, which makes steel with electric furnaces that melt scrap and other raw materials, rather than with the massive blast furnaces used by US Steel and Cleveland Cliffs.