Media reports: Biden could block USS sale on national security concerns

The news came on Wednesday just hours after U.S. Steel President and CEO David Burritt said in a statement that the Pittsburgh-based steelmaker might close plants, cut thousands of jobs, and move its headquarters if the deal did not go through.

U.S. Steel’s shares fell more than 20% on the news before recouping some of those losses later in the day and on Thursday.

The media reports indicated that Biden might stop the deal following recommendations from the Committee on Foreign Investment in the Untied States (CFIUS). CFIUS is chaired by Treasury Secretary Janet Yellen and includes representatives from across the federal government.

The committee “hasn’t transmitted a recommendation to the president, and that’s the next step in this process,” the New York Times quoted a White House official as saying.

Secretary Yellen declined to comment on whether the Biden administration might block the deal, according to a report in Reuters on Thursday afternoon.

Nippon Steel and U.S. Steel respond

Nippon Steel said in a statement to SMU that it was aware of “rumors” about its proposed acquisition of U.S. Steel. It also criticized the idea that a steelmaker based in Japan, a key US ally, might pose national security concerns.

“We have not received any update related to the CFIUS process. Since the outset of the regulatory review process, we have been clear with the administration that we do not believe this transaction creates any national security concerns,” Nippon Steel said.

The Japanese steelmaker said the deal would put both U.S. Steel and the American steel industry on firmer footing. The company also said it was “the only willing and able party” to invest billions in U.S. Steel.

“Nippon Steel strongly believes that the US government must appropriately handle procedures on this matter in accordance with the law,” the company added.

U.S. Steel sounded a similar note in a statement to SMU.

“We have not received any update or executive order in relation to the CFIUS process. 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,” the company said.

“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,” it added.

Cliffs still in the hunt

Cleveland-Cliffs President and CEO Lourenco Goncalves said that the Ohio-based steelmaker had the financial firepower to acquire any mills U.S. Steel might close.

“With the continued exclusive and unwavering support of the United Steelworkers union, and with ample financing support available from our bank group led by J.P. Morgan and Wells Fargo, Cleveland-Cliffs stands ready to immediately acquire and invest in any and all union-represented assets that U.S. Steel shuts down,” Goncalves said in a statement on Thursday.

Recall that Cliffs was among the suitors for U.S. Steel. It’s bid was narrowly bested by Nippon Steel.

Goncalves also cheered Biden’s reported decision to block the acquisition by Nippon. “President Biden’s courageous move affirms our view that our industry is best served by American companies that are committed to the long-term prosperity of domestic manufacturing,” he said.

Goncalves has been trolling U.S. Steel since it announced Nippon was the winning bidder. He continued to do so.

“The last-minute threats by U.S. Steel to shut down integrated steelmaking production, fire union workers, and move their headquarters from Pittsburgh if their deal does not close, is just a pathetic blackmail attempt on the United States government and the Commonwealth of Pennsylvania,” he said.

Analyst reaction

Josh Spoores, head of steel America analysis at CRU, said the USW had been able to influence the sales process more than most had expected. And the benefits the union has been able to negotiate include the nearly $3 billion in new investments at U.S. Steel’s unionized mills.

“Truly the union is on the verge of an incredible win,” Spoores said. “The risk is that they may be playing a game of brinksmanship – one where they have pushed the total cost of this acquisition by Nippon close to a point where the overall deal may fall through.”

And the risks to the USW if U.S. Steel ends up being a standalone coming are huge. “We will see union-run assets permanently close instead of being supported by new investments,” he said.

President Biden potentially blocking the deal is also a concern. But there is one important caveat: “The CFIUS application was pulled so, in effect, there is nothing for the president to block – yet,” Spoores said.

Even so, “USS may now act to start preparing for this sale to be blocked, and we may see WARN notices being prepared as the domestic steel prices remain well below levels of the last few years,” he noted.

SMU’s hot-rolled coil price stands at $690 per short ton (st) on average. That’s roughly on par with $710/st a year ago. But it’s down from $785/st in early September 2022 and down from $1,935/st in early September 2021, according to our pricing records.

There is also the possibility that former President Donald Trump, who has previously opposed the deal, could come back into the picture. “He may see just how well the union did in negotiating with Nippon, that this is a win for rebuilding American manufacturing, and he could endorse this as a win for the union,” Spoores said.

Note that SMU is a subsidiary of CRU. You can read more of CRU’s market analysis here.