Biden blocks USS deal, Nippon hints at legal action

The transaction recently received a split decision from the Committee on Foreign Investment in the United States (CFIUS) on whether or not it posed a national security threat.

National security liability

“We need major US companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests,” President Biden said in a statement on Friday.

He cited the findings of the committee of national security and trade experts that the buy would put a key American steel company “under foreign control and create risk for our national security and our critical supply chains.”

“So, that is why I am taking action to block this deal,” Biden said. “It is my solemn responsibility as President to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry.”

He commented that it was a fulfillment of that responsibility “to block foreign ownership of this vital American company.”

“U.S. Steel will remain a proud American company – one that’s American-owned, American-operated, by American union steelworkers – the best in the world,” Biden added.

USS, Nippon signal possible legal action

U.S. Steel and Nippon issued a joint statement on Friday, lamenting the decision and hinting at possible litigation.

“We are dismayed by President Biden’s decision to block Nippon Steel’s acquisition of U.S. Steel, which reflects a clear violation of due process and the law governing CFIUS,” the companies said.

They claimed the process was “manipulated to advance President Biden’s political agenda,” adding that the president’s statement does not “present any credible evidence of a national security issue.”

“Blocking this transaction means denying billions of committed investment to extend the life of U.S. Steel’s aging facilities and putting thousands of good-paying, family-sustaining union jobs at risk,” according to the companies.

Additionally, the companies disputed the CFIUS ruling.

“The record before CFIUS is abundantly clear that this transaction, with the commitments made by Nippon Steel, would strengthen, not weaken, national security,” they said. “Yet, it is clear that the CFIUS process was deeply corrupted by politics, and the outcome was pre-determined.”

Finally, USS and Nippon indicated they are open to pursuing legal remedies for the situation.

“Following President Biden’s decision, we are left with no choice but to take all appropriate action to protect our legal rights,” USS and Nippon said.

SMU reported in November that Nippon was considering suing the US government if the deal didn’t pass through.  

Nippon’s Representative Director, Chairman, and CEO Eiji Hashimoto claimed in the Japanese periodical Bunshun that if the US government reaches “the wrong conclusion without following legitimate procedures, we’re prepared to sue.”

USW cheers

Critical of the deal from the outset, the USW applauded the president’s decision.

“The USW welcomes President Biden’s decision to block the U.S. Steel-Nippon deal. We have no doubt that it’s the right move for our members and our national security,” USW International President David McCall said in a statement on Friday.

“Throughout the past year, as the proposed transaction was under review, our union’s first and only concern has been the long-term viability of our facilities as we look to ensure a strong domestic steel industry well into the future,” McCall added.

He said it was clear from U.S. Steel’s recent financial performance “that it can easily remain a strong and resilient company.”

“We now call on U.S. Steel’s board of directors to take the necessary steps to allow it to further flourish and remain profitable,” McCall said.

CRU’s Josh Spoores weighs in

Regarding the decision, CRU Principal Analyst Josh Spoores said, “I feel it’s just highly politicized, and that was the lever used to make the decision come about.”

As to what comes next and whether the deal is fully done, Spoores said, “It appears that this closes out this transaction, but it may not be fully over yet.”

He pointed to Nippon’s threat of legal action: “So there is that possibility that this gets reopened due to legal reasons.”

Spoores alluded to another possibility: “There’s nothing in there that says Nippon can’t come to the US and build a steel mill. They can do it cheaper than buying U.S. Steel, for sure.”

With President-elect Trump taking office in just a few weeks, Spoores noted that could also push the deal into new territory.

Trump recently said that any foreign entity investing a billion dollars in the US will get an expedited approval process.

“He said he’s against it, but he is a deal-maker, a negotiator,” Spoores said, adding: “He wants foreign companies to invest in the US.”

Still another possible outcome could be USS splitting up assets and Nippon picking something up.

“U.S. Steel has some fantastic iron ore reserves that can make low-emission HBI and DRI pellets that can feed an EAF mill,” Spoores said.

“So I think Nippon, if they really want to be in the US, they could work closely with U.S. Steel to form a JV, much like they have with ArcelorMittal at Calvert.”

AM/NS in Calvert, Ala., is a joint venture with a hot strip mill, continuous pickling line, pickle line-tandem cold mill, and galvanized and aluminized coating lines. An electric-arc furnace is also being added to the facility.

However, Spoores pointed out, “The unfortunate thing is if that goes on, we’re going to see U.S. Steel cut back production somewhere. And it’s really, it’s the union that’s the loser.”

It’s likely that USS would prioritize newer EAF assets like Big River in Arkansas over integrated works that are heavily unionized, such as Mon Valley in Pennsylvania.

“You’re still going to see Nippon enhance their participation in the US, but it comes now at the expense of the union, where, with this acquisition, it was, everybody wins,” Spoores concluded.