Biden to Block Nippon Steel’s Proposed Takeover of US Steel

[army judge]

Biden to Block Nippon Steel's Proposed Takeover of US Steel

(Bloomberg) -- US President Joe Biden is preparing to block Nippon Steel Corp.'s $14.1 billion takeover of United States Steel Corp., according to people familiar with the matter.


But US Steel, responding on Wednesday evening, vowed to "pursue all possible options under the law to ensure" that the sale is completed.

The proposed deal has been subject to a review by the secretive Committee on Foreign Investment in the United States, and Biden plans to kill it as soon as the CFIUS referral lands on his desk, said the people, who asked not to be identified because the move hasn't yet been announced. A decision could be made as soon as this week, they said. The Washington Post earlier reported on Biden's plan.

Shares of US Steel closed 17% lower in New York, the biggest decline since April 2017.

"We have not received any update or executive order in relation to the CFIUS process," US Steel said in a statement. "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" goes through.

The proposed acquisition touched off an election-year firestorm in the crucial swing state of Pennsylvania, where US Steel and the United Steelworkers union that opposes the deal are both based. CFIUS hasn't yet transmitted its recommendation to the president, a White House official said.

Any move to block the deal could potentially be subject to litigation. There's no sign that Nippon Steel plans to walk away voluntarily, one of the people said.

The past two weeks have brought a drumbeat of developments, including a fresh $1.3 billion commitment from Nippon Steel, a commitment to use an American-majority proxy board and a warning from US Steel that the deal's death may spell the end of some of its plants.

Biden has long pledged that US Steel, an iconic American company headquartered in Pittsburgh, should remain domestically owned and run, a stance with which Vice President Kamala Harris, the Democratic presidential nominee, is also aligned. Harris announced her position at a Labor Day event in Pittsburgh on Monday.

Donald Trump, her Republican opponent in November's election, had outright vowed to block the deal if elected to the White House.

There's little precedent for the move. Proponents of Nippon Steel's bid say the US shouldn't reject a bid from a company based in an allied country such as Japan, particularly one that could create a joint entity with scale to compete with China.

CFIUS investigations are notoriously secretive, with little public hint of progress or timeline. CFIUS is a panel of government officials that reviews proposals by foreign entities to purchase companies or property in the US. It is chaired by the Treasury Department, but also includes members from the State, Defense, Justice, Commerce, Energy and Homeland Security departments.

Because it never comments on individual reviews and often relies on classified information to decide whether to oppose or clear a deal, its investigations are effectively a black box.

It's not clear what the panel's decision is, or whether it has made one.

The last time a US president used CFIUS to block a deal was in May, when Biden ordered a Chinese crypto company to sell and vacate land near a US air force base. Prior to that, only seven deals had ever been blocked.

If the Nippon Steel deal is successfully blocked, the fate of US Steel remains unclear. The company warned Wednesday that failing to complete the deal would imperil thousands of jobs and force the company to pivot away from some of its legacy blast furnace facilities, including those in Pennsylvania, and potentially even relocate its headquarters from Pittsburgh.

--With assistance from Doug Alexander and Daniel Flatley.

(Updates with US Steel statement, starting in second paragraph.)

Biden to Block Nippon Steel’s Proposed Takeover of US Steel

(Bloomberg) -- US President Joe Biden is preparing to block Nippon Steel Corp.’s $14.1 billion takeover of United States Steel Corp., according to people familiar with the matter.Most Read from BloombergHow Air Conditioning Took Over the American OfficeHong Kong’s Arts Hub Turns to Selling Land...

finance.yahoo.com

 

[Tax Counsel]

So it appears that Trump, Biden, and Harris are all on the same page on rejecting the takeover of US Steel if the anonymous sources quoted in the article are accurate. I can see why they are framing it as a national security issue, but there's a risk that U.S. Steel may eventually go under anyway, taking with it all the jobs it provided and leaving the U.S. without a domestic major steel supplier.

U.S. Steel does not have a great outlook because of missteps by its management. It didn't invest in updating old plants to produce steel less expensively, with the result that a good chunk of steel business went to China and by the time US Steel management woke up to that problem it was already too late, at least for any short term fix. Long tem it may be possible to revive the company's fortunes, but it's going to take a significant infusion of cash to do it.

US Steel is still profitable today, but its year to year earnings have been declining. If that continues it will just be a matter of time before US Steel ends up in bankruptcy. That may have the effect of leaving the U.S. dependent on steel produced in some other country. If that country ends up being China, I think that would be a greater national security problem than having a close ally running plants in the U.S.

The press is making this out to sound like an easier decision than it is. I think the candidates may be falling into that trap too, in an effort to pick up union votes. If the takeover is blocked, are the candidates prepared to advocate for a public bailout of the company to modernize it?

 

[Redemptionman]

Yes, Unions continue to screw up all the companies who use them exclusively. I believe in pay for performance, but when they hire in floor workers for wages that a substantially higher than the prevailing local wages then that could be a path to profitability. Soon the unions won't have any more companies to ruin and they can just shoot themselves in the foot which they do along the way anyway. They support donkeys and always have then wonder why NAFTA and US car production moved to Mexico.

What a joke.

 

[Zigner]

They support donkeys and always have then wonder why NAFTA and US car production moved to Mexico.

"...then wonder why NAFTA..."
What do you mean?

 

[stealthy1]

If the takeover is blocked, are the candidates prepared to advocate for a public bailout of the company to modernize it?

I suspect they will.

 

[Tax Counsel]

Yes, Unions continue to screw up all the companies who use them exclusively. I believe in pay for performance, but when they hire in floor workers for wages that a substantially higher than the prevailing local wages then that could be a path to profitability. Soon the unions won't have any more companies to ruin and they can just shoot themselves in the foot which they do along the way anyway. They support donkeys and always have then wonder why NAFTA and US car production moved to Mexico.

What a joke.

The union does have a big impact on this deal. But US Steel is not exclusively union. US Steel's management finally woke up the fact that continuing to use 100 year old blast furnace technology was loser in today's competitive international market for steel. As a result US Steel in 2020 built its first modern steel plant using up to date technology and hired non union workers for it. The plant has been one the bright spots for US Steel because, despite critics in who said at the time that US Steel massively overspent on it during a recession, it is today quite profitable. That plant is one of the big reasons Nippon Steel was interested in US Steel in the first place. It didn't want all the baggage that went the union contracts but if they want the company they have to take the good with bad.

Even without Trump, Biden, or Harris blocking the deal it looks like it's on shaky ground now anyway. The meeting between a top representatives of Nippon and the Union evidently went badly. If US Steel can get the funds to build more of those modern plants and phase out the old ones that could help it avoid the bleak market situation it faces today. The problem is that even if it can get the money quickly building new plants and phasing out the old ones takes time and it is already behind the competition.