Biden Preparing to Block Nippon Steel Purchase of U.S. Steel

The Washington Post / David J. Lynch, Jeff Stein

11:16 JST, September 5, 2024

President Joe Biden is preparing to announce that he will formally block Nippon Steel’s proposed $14.9 billion acquisition of U.S. Steel, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe a decision not yet made public.

The stunning move to kill a deal featuring a corporation from Japan, a close U.S. ally, comes as Vice President Kamala Harris battles former president Donald Trump for support from union members across the industrial Midwest.

The acquisition has been under investigation by the interagency Committee on Foreign Investment in the United States (CFIUS) for potential national security implications. A White House official declined to comment but said in a statement that CFIUS had not yet transmitted its recommendation to the president. Under the law, the president can block a private transaction only after receiving the panel’s final report.

But after an extensive review, the Treasury-led committee appears to have concluded that the national security concerns raised by the acquisition could not be mitigated, according to two industry sources who asked not to be named discussing sensitive deliberations.

After The Washington Post broke the news of the president’s decision on Wednesday, U.S. Steel’s stock price lost one-quarter of its value in roughly 30 minutes of trading. The company’s shares finished the day down 17.5 percent.

Earlier Wednesday, before the news broke, U.S. Steel CEO David Burritt warned that the deal’s collapse would put at risk “thousands of good-paying union jobs” and raise “serious questions” about the likelihood that the company would remain headquartered in Pittsburgh.

Last week, Nippon Steel increased its planned investment in the new U.S. Steel by $1.3 billion in addition to the $1.4 billion it had previously detailed. The Japanese company said the extra money would modernize two of U.S. Steel’s largest facilities, the Mon Valley Works in Pennsylvania and Gary Works in Indiana.

“A stand-alone U.S. Steel would not make the same financial commitments,” U.S. Steel said Wednesday.

The companies have yet to receive any formal notification from the government. And no date for the presidential announcement has yet been set, the people with knowledge of the matter said.

“We continue to stand by the fact that there are no national security issues associated with this transaction, as Japan is one of our most staunch allies. We fully expect to pursue all possible options under the law to ensure this transaction, which is [the] best future for Pennsylvania, American steelmaking, and all of our stakeholders, closes,” U.S. Steel said in response to questions.

The president first publicly opposed the deal in March, saying it was “vital” for U.S. Steel to remain American-owned. Administration officials privately told Japanese diplomats that the president’s stance was linked to his need to win United Steelworkers union support in the November election. Pennsylvania’s 19 electoral votes remain pivotal for Harris, who replaced Biden on the Democratic ticket.

Harris voiced her opposition to the deal this week. In January, Trump said he would “block it instantaneously” if he were returned to the White House. Many lawmakers, especially from Pennsylvania and Ohio, also expressed dismay at the transaction.

The union opposed the Nippon deal, preferring a rival bid by Cleveland Cliffs, an American steelmaker based in Cleveland. U.S. Steel had rejected its $7.3 billion offer four months before Nippon Steel weighed in.

Nippon Steel sought to win union backing by promising that it would institute no layoffs or plant closures after completing the acquisition and would commit $1.4 billion to refresh U.S. Steel’s aging plants.

But United Steelworkers President David McCall derided the company’s plan as “empty.” Loopholes in the deal made the promises unenforceable, he said.

Nippon Steel said it was drawn to the United States by Biden’s use of tax incentives and subsidies to spur domestic production. Buying U.S. Steel, which operates both traditional blast furnaces and smaller, more efficient electric arc systems, would enable it to capitalize on the U.S. industrial rebound.

Yet even as Nippon Steel’s interest validated the president’s economic policies, he was turning against the deal.

Within days of its announcement in December 2023, the White House signaled concern, with National Economic Council Director Lael Brainard stating that Nippon’s bid warranted “serious scrutiny.”

The only way that the president could kill the transaction would be by invoking the national security language of the CFIUS law.

Yet independent analysts were baffled by the idea that allowing Japan’s Nippon Steel to acquire the Pittsburgh steelmaker would somehow harm U.S. national security.

Japan has been a U.S. ally since the end of World War II. The U.S.-Japan Security Treaty obligates the United States to defend Japan if it is attacked, and almost 55,000 American military personnel are stationed in Japan.

The U.S. military’s annual steel requirements, meanwhile, amount to just 3 percent of total domestic production, according to the Pentagon, suggesting U.S. Steel by itself is not essential to the national defense. The Defense Department does not buy anything directly from the company.

And Nippon Steel already owns stakes in several smaller U.S. Steel companies, which employ about 4,000 American workers.

Under those circumstances, many analysts regarded the Biden administration’s stance as politically driven.

“Japan is an ally. We need our friends at a time when geopolitical tensions couldn’t be higher,” said one industry executive, who spoke on the condition of anonymity to maintain relations with the White House.

U.S. Steel boasts an impressive history: It was the nation’s first billion-dollar corporation, was formed by industrial heroes including John D. Rockefeller and provided the raw material that helped win World War II.

But it no longer is the industrial titan it once was.

Today, U.S. Steel is the nation’s third-largest steelmaker by revenue, employs half as many workers as it did 20 years ago and has lost money in nine of the past 15 years.

Company executives and Wall Street analysts saw Nippon Steel as a suitor that could revive the American company’s blast furnaces and equip it for intensifying global competition.

The deal would have created the third-largest global steelmaker in a bid to compete with Chinese rivals.