U.S. President Joe Biden is poised to formally block Nippon Steel's proposed $14.9 billion takeover of U.S. Steel, officials said Friday, dealing a perhaps fatal blow to the controversial merger plan.
The Committee on Foreign Investment in the United States (CFIUS) spent months reviewing the deal, taking national security risks into account, but after failing to reach an agreement, it referred the decision to Biden in December.
The Washington Post, which first reported the news, said his decision came despite concerns from some senior advisers that it could damage relations with Tokyo, a key Asian ally. A decision could be made as early as Friday.
The newspaper named two government officials who were not authorized to speak publicly on the issue.
U.S. Steel's stock price fell 7.8% in pre-market trading following the news. Japan's stock markets were closed on Friday due to a public holiday.
Spokespeople for the White House and Nippon Steel declined to comment.
“We hope that Mr. Biden will do the right thing and abide by the law by approving a transaction that clearly strengthens the national and economic security of the United States,” U.S. Steel told Reuters in a statement on Thursday. .
Nippon Steel paid a hefty premium to seal the acquisition of the second-largest steel producer in the U.S. in a December 2023 bid, but the deal faced opposition from the powerful United Steelworkers union (USW) and politicians. faced.
Biden has previously said he wants to keep U.S. Steel domestically owned and operated, while President-elect Donald Trump has vowed to block foreign takeovers of the storied American company after taking office on January 20. are.
risky business
Japanese Prime Minister Shigeru Ishiba urged Biden in a letter in November to approve the bill. merger Reuters reported exclusively to avoid undermining recent efforts to strengthen ties between the two countries.
Ishiba's spokesperson was not available for comment on Friday, and Japan's Ministry of International Trade and Industry declined to comment, saying there had been no formal announcement of the decision.
Japan is a key ally of the United States in the Indo-Pacific, and China's economic and military rise, along with the threat from North Korea, is causing concern in Washington.
The company is also the largest US investor, and Keidanren, the largest business lobby group, has previously expressed concerns facing the review. political pressure.
Alistair Ramsey, vice president of steel research at consultancy Rystad Energy, said blocking the deal could potentially lead international investors to take advantage of unionized and politically sensitive U.S. companies in the short term. He said this could discourage bids.
“A large-scale bid less than 12 months before the presidential election is a risky idea, but large steel producers with conventionally operated reactors such as Nippon Steel have been able to “We think it's the best place to produce steel in the long term,” he added.
Nippon has vowed to fight any decision to halt the deal in court, but its lawyers, including Nick Wall, an M&A partner at Allen & Overy, have warned the U.S. government that they would not be able to raise such a legal challenge. He said it would be difficult to file a complaint.
Both companies were trying to allay concerns about the merger. Nippon Steel has proposed moving its U.S. headquarters to Pittsburgh, home of the U.S. steelmaker, and has pledged to abide by all agreements in place between U.S. Steel and USW.
Sources said this week that Nippon Steel is also proposing to give the U.S. government a veto over potential capacity cuts at U.S. Steel as part of efforts to secure Biden's approval.
“It is difficult to fully understand the risks associated with Nippon Steel's potential acquisition of U.S. Steel,” said a Japanese government official who spoke on condition of anonymity, as did other sources.
“Nippon Steel has taken all measures to eliminate risks related to economic security, including pledging not to reduce production.”
Nippon Steel faces a $565 million penalty payment to U.S. Steel after the agreement collapsed, prompting a major rethink of its overseas-focused growth strategy.
With the acquisition of US Steel, Nippon Steel aims to increase its global production capacity from the current 65 million tons per year to 85 million tons, moving it closer to its long-term goal of increasing production capacity to 100 million tons.
U.S. Steel has previously said a failed deal could put thousands of jobs at risk and force some steel mills to close, but the USW union has called this a baseless threat. He claimed that it was a threat.
But Atilla Widnell, managing director of Singapore-based trade consultancy Navigate Commodities, said any decision to block the deal would be “wrong”.
“Nippon Steel is a bona fide operator of overseas assets and has a strong and successful track record,” Widnell said.
“U.S. Steel acknowledges that its assets are in urgent need of new major investment and that it is unable to maintain operating capacity and production under current conditions.”
