Plans were already well under way for Japan-based Nippon Steel, the third largest steel maker in the world, to acquire troubled Pittsburg, Pennsylvania-based U.S. Steel for $14.9 billion, long before Biden made his pronouncements on this yesterday.
If it were to have proceeded as planned, it would have brought together Nippon, which is headquartered in Chiyoda-Ku in the Tokyo area, with 2023 revenues of $61.74 billion with U.S. Steel, which brought in revenues of $18.05 billion last year. U.S. Steel is the number two provider of steel in the U.S. and is second only to Nucor Corporation, which in 2023 reported income of $34.71 billion.
With part of the deal including a pledge by Nippon to invest almost $3 billion to modernize U.S. Steel’s older mills, enabling retaining U.S. Steel’s headquarters in its current hometown of Pittsburgh, Pennsylvania, and Japan being one of the United States’ closest allies, many expected the acquisition to proceed smoothly. It would secure jobs in a critical important sector of the American economy. It would restore to preeminence two of the company’s long-established steel making plants, Gary Works in Indiana and Mon Valley Works in Pennsylvania.
The merger would also accomplish that for a company located in an important “swing” state in the upcoming presidential election between Biden’s Vice President Kamala Harris and Donald Trump.
Despite the many positives for the merger, the move for Nippon Steel to acquire U.S. Steel became a major political issue back in December. That was when, after details of the proposed merger were announced, the United Steelworkers union said it was categorically opposed to the merger in terms of what it might mean to many of its employees. The union much preferred an acquisition bid proposed by Cleveland Cliffs, another steel producer based in Cleveland, Ohio. U.S. Steel’s board rejected that company’s $7.3 billion deal a full four months before Nippon Steel put up a bid of its own.
In March, Joe Biden made his first public statements opposing the deal, while on the campaign trail and actively courting early union workers’ support from organizations such as the United Steelworkers. He declared that critical industries like steelmaking need to be kept in the U.S. and that he believed it was best U.S. Steel remain American-owned.
Over the next few months Japan’s regulators reviewed Nippon Steel’s proposal for the acquisition, including pledges to keep the board for U.S. Steel predominantly American, and descriptions of how business between the parent company and its new subsidiary would be coordinated. The Japanese government has now fully approved the transaction.
Most other regulatory hurdles in the U.S. have also been passed, including implications regarding antitrust considerations. Since Nucor Corporation will remain much bigger than U.S. Steel, even with the additional Japanese investments and merger making the now larger Nippon Steel the third world’s third biggest steelmaker , there is little concern the balance of power will shift that much in the United States if the acquisition goes ahead.
The only remaining U.S. agency still to pass on the proposed deal is the Commerce Department’s Committee on Foreign Investment in the United States (CFIUS). It typically reviews national security concerns connected with mergers, and that is apparently what Biden plans to use as his argument to prevent the purchase.
A recent report from the Financial Times which quoted people involved in the CFIUS review said the committee had already put Nippon Steel on notice the purchase would create “national security concerns” that neither company could fix. That came out despite that the U.S. Department of Defense recently noted that it buys only 3% of the steel produced by American steelmakers, which indirectly says Nippon’s acquisition could not possibly have a direct national security impact on the American military.
With that in mind, the CFIUS comment about “national security concerns” is therefore far from a final answer on the matter but could explain why news of Biden’s own recent comments against the merger came out yesterday.
Candidate Kamala Harris also said during her recent campaign stops in late August that she opposed Nippon Steel’s buyout of U.S. Steel.
After the news of Biden’s now more formal opposition to the merger was released, U.S. Steel CEO David Burritt told reporters that Nippon’s offer of $3 billion in investments in its older plants was the only way it could remain competitive while retaining jobs.
"We wouldn't do that if the deal falls through," Burritt said. "I don't have the money."
Burritt explained further that without the funds he expected his company would be forced to close down it Mon Valley Works in Pennsylvania and move the headquarters out of the state.
With the company already in trouble, and with it having lost money in nine of the years since 2009, the loss of Nippon Steel as a partner and investor will likely trigger currently unplanned layoffs in U.S. Steel.
The stock market reacted harshly to the news that Joe Biden planned to prevent the Nippon Steel – U.S. Steel merger from happening. U.S. Steel’s stock price dropped 17.5%.