President of the United States Joe Biden on Friday, January 3, officially blocked Nippon Steel’s proposed purchase of U.S. Steel in the framework of the deal worth $14.9 million.
According to media reports, it is likely that the mentioned decision will become a fatal blow to the contentious merger plan after a year of review.
Joe Biden’s statement noted that a strong domestically owned and operated steel industry is an essential national security priority and is crucial for sustainable supply chains. Also in this context, it was separately highlighted that without homegrown steel production and domestic steel workers, the United States would become less strong and less secure.
The Committee on Foreign Investment in the US (CFIUS) spent months reviewing the deal. In this case, attention was paid to the potential consequences of the implementation of the business agreement in terms of the impact on the condition of national security. The committee referred a decision on the relevant issue to Joe Biden, failing to reach a consensus.
The deal was announced in December 2023. This initiative almost immediately faced opposition in the United States. To a large extent, the relevant situation was related to the political reality in the country at that time. The United States was on a trajectory of approaching the presidential election. During such periods, in almost all countries, certain issues and aspects of the existence of the political management system become more acute. In this case, several aspects of foreign policy are being actualized, including in the context of business interaction with external partners. National security issues are also escalating during the pre-election period. At the same time, there is no guarantee that the deal would have been approved if the decision on it had been made at a less politically active time. The steel industry is of great significance to the economy, so the issue of the ownership structure of production sites in this case is critically important.
With the election looming, Joe Biden and Donald Trump pledged to block the deal. If there were semantic elements in these statements that were conditioned solely by considerations of what was necessary at a particular moment in the election rhetoric, then this is clearly only a partial explanation and not the most essential meaning of the officially declared intentions regarding the business agreement. The blocking of the deal is primarily related to the critical importance of the steel industry for the economy, including in the context of its prospects and sovereignty.
Steel is used in construction, machine and instrument engineering, consumer goods, aerospace, and many other areas.
It is also worth noting separately that U.S. Steel is the first corporation in history valued at over $1 billion, which has ever control most of the steel output in the United States.
Nippon Steel paid a hefty premium to clinch the deal. This Japanese steel manufacturer has also agreed to significant concessions. In the relevant context, it is worth mentioning the willingness to grant the United States Government the power to veto changes in output.
U.S. Steel, based in Pittsburgh, warned that without the implementation of the deal with the Japanese corporation, thousands of jobs will be at risk.
The media, citing analysts, published information according to which there is a possibility that another buyer may emerge. The journalists also noted that Ohio-based Cleveland-Cliffs could become this buyer.
Nippon Steel has threatened legal action if the deal is blocked. Whether this threat will have any consequences will soon become known.
Against the background of the blocking of the deal value, U.S. Steel shares fell by 8% before the opening of trading.
In a November letter, Japanese Prime Minister Shigeru Ishiba urged Joe Biden to approve the implementation of the business agreement so as not to marring efforts to strengthen ties between Tokyo and Washington. The relevant information was published in the media.
Before the announcement of Joe Biden’s decision regarding the deal, reporters tried to get a comment from a spokesperson for the Japanese Prime Minister, but they failed. The trade ministry of the Asian country declined to make any statements about this, but the corresponding position was fixed even before the announcement of the decision.
It is worth noting that Japan is the main ally of the United States in the Indo-Pacific region. China is currently experiencing an economic and military rise in this region. Threats from North Korea continue to be relevant here, which concern the United States.
Moreover, Japan invests in the US. Keidanren, the Asian country’s largest business lobby, aired concerns that the review of the deal was facing political pressure.
Alistair Ramsay, vice president of steel research at consultancy Rystad Energy, said that blocking the business agreement may dissuade international investors from bidding for politically sensitive US companies with a unionized workforce in the short term.
Lawyers including Nick Wall, M&A partner at Allen & Overy, noted that Nippon Steel’s vow to mount a legal challenge against the United States government would be tough.
It is worth noting that both participants of the deal sought to take steps to assuage concerns about the merger. As part of the corresponding effort, Nippon Steel has offered to move its US headquarters to Pittsburgh. The corporation also promised to honor all agreements concluded between U.S. Steel and the USW.
A Japanese government official, who spoke to reporters on condition of anonymity, said it was difficult to fully understand the risks associated with the potential acquisition of U.S. Steel by Nippon Steel. It was also separately noted that the corporation from an Asian country has done everything to eliminate the risks related to economic securities, including the commitment not to reduce production.
Nippon Steel faces a $565 million penalty payment to U.S. Steel following the deal’s collapse. This circumstance may lead to a rethinking of the corporation’s growth strategy focused on foreign markets.
As we have reported earlier, Taiwan Blocks Uber’s $950 Million Foodpanda Deal.
