President Joe Biden has officially obstructed Nippon Steel’s proposed $14.9 billion acquisition of US Steel, delivering a potentially fatal setback to the contentious merger plan following a year of evaluation.
“A robust domestically owned and operated steel industry is a crucial national security priority and vital for resilient supply chains,” Mr. Biden stated in an announcement.
“Without domestic steel production and domestic steelworkers, our nation becomes less strong and less secure,” he continued.
The Committee on Foreign Investment in the United States dedicated several months to examining the deal for national security concerns but ultimately handed the decision over to Mr. Biden in December after failing to reach a consensus.
Mr. Biden has previously indicated his desire for US Steel to remain domestically owned and operated, while President-elect Donald Trump has pledged to prevent a foreign takeover of the renowned American firm after taking office on January 20.
The deal met resistance from the United Steelworkers union.
In a letter from November, Japanese Prime Minister Shigeru Ishiba urged Mr. Biden to endorse the merger to avoid tarnishing the recent efforts to strengthen relations between the two nations, as reported exclusively by Reuters.
A spokesperson for Mr. Ishiba was unavailable for comment prior to the announcement, and Japan’s trade ministry refrained from commenting, stating there had been no formal announcement regarding the decision.
Japan is a significant ally of the US in the Indo-Pacific region, where concerns regarding China’s economic and military ascent and threats from North Korea have heightened anxieties in Washington.
Japan also stands as the largest investor in the US, with Keidanren, its largest business lobby, previously expressing worries that the review was under political pressure.
Blocking the deal may deter international investors from pursuing bids for politically sensitive US companies with unionized workforces in the short term, noted Alistair Ramsay, vice president of steel research at the consultancy Rystad Energy.
“Large bids are a risky proposition less than a year away from a presidential election; however, major steel producers with traditional operating furnaces, like Nippon Steel, view the US as a favorable location for steel production in the long term, despite the existing market challenges,” he added.
Nippon Steel has decided to file a lawsuit against the US government to contest the appropriateness of the procedures through which Mr. Biden issued the order to block its acquisition, as reported by the Nikkei business daily.
However, legal experts have noted that mounting such a legal challenge against the US government would be challenging.
The two companies had attempted to alleviate concerns surrounding the merger.
Nippon Steel has made efforts to secure Mr. Biden’s approval.
Nippon proposed relocating its US headquarters to Pittsburgh, where US Steel is located, and committed to honoring all existing agreements between US Steel and the United Steelworkers (USW).
A source familiar with the situation revealed this week that Nippon Steel also proposed granting the US government veto power over any potential reductions in US Steel’s production capacity, as part of its strategy to obtain Mr. Biden’s approval.
“It’s challenging to fully grasp the risks associated with Nippon Steel’s potential acquisition of US Steel,” stated a Japanese government official, speaking on condition of anonymity, as did the other sources.
“Nippon Steel has made every effort to mitigate risks related to economic security, including pledges not to reduce production,” the official noted.
Following the collapse of the deal, Nippon Steel faces a $565 million penalty payment to US Steel, which is expected to prompt a significant reevaluation of its overseas-focused growth strategy.
With the acquisition of US Steel, Nippon Steel aimed to elevate its global output capacity from the current 65 million metric tons to 85 million metric tons annually, edging closer to its long-term objective of reaching 100 million tons.
‘Right move’
US Steel has previously warned that the failure of the deal could jeopardize thousands of jobs, potentially forcing the closure of several steel mills—an assertion the USW characterized as an unfounded threat and intimidation.
However, Atilla Widnell, managing director at the Singapore-based trade consultancy Navigate Commodities, described any decision to block the deal as “misguided.”
“Nippon Steel is a legitimate operator of overseas assets with a proven and successful track record,” Mr. Widnell stated.
“Furthermore, US Steel has acknowledged that its assets require substantial new investment to maintain operational capacity and production in their current condition,” he added.
The United Steelworkers union expressed support for Mr. Biden’s decision to block the sale, labeling it “the right move for our members and our national security.”
“We appreciate President Biden’s readiness to make bold decisions to sustain a strong domestic steel industry and for his lifelong dedication to American workers,” USW International President David McCall said in a statement.
