Nippon Steel, Japan’s largest steelmaker, has been trying for months to finalize its acquisition of U.S. Steel. On April 12, U.S. Steel stockholders voted overwhelmingly in favor of the all-cash transaction, offering $55.00 per share — a nearly 40% premium over U.S. Steel’s December closing price. Despite near unanimous support from stockholders and executives, the $14.1 billion deal faces formidable opposition.
Founded in 1901, U.S. Steel is one of America’s most storied companies. With a market capitalization estimated at $1.4 billion in the early twentieth century, U.S. Steel was the world’s first billion-dollar corporation. However, the company has recently struggled, and in 2021, it had to shelve a $1.2 billion upgrade to a Pennsylvania plant due to financial constraints from environmental fines. Nippon Steel aims to provide the necessary investments to rejuvenate U.S. Steel's aging plants.
For a merger of this size, antitrust laws typically present the primary obstacle to a successful acquisition. In this case, the Justice Department is in the process of reviewing the merger for market-concentration concerns. Yet, for Nippon Steel, antitrust concerns are secondary to the political sensitivities surrounding the deal, particularly as the 2024 U.S. presidential election approaches.
President Biden has repeatedly expressed his opposition to a foreign acquisition, arguing that “it is vital for U.S. Steel to remain an American company that is domestically owned and operated.” Other populist-minded politicians from across the aisle, like the Ohio Senator J.D. Vance, have also objected, citing national security risks due to steel's critical role in wartime production. This has led to a national security review by the Committee on Foreign Investment in the United States (CFIUS), which is often criticized for its opaque operations. Nippon Steel counters that the takeover poses no national security threat, especially since U.S. Steel does not produce military-grade steel and Japan is a key U.S. ally.
The deal's implications extend beyond national security; they also have significant electoral consequences. Both Democratic and Republican politicians have strong reasons to publicly reject the U.S. Steel takeover. The constituency most affected by the acquisition are blue collar workers employed by U.S. Steel who reside in crucial swing states such as Pennsylvania. These workers are represented by the influential United Steelworkers union, which has opposed the takeover, fearing job losses and plant closures. Although Nippon Steel has committed to honoring past contracts, union leaders are skeptical.
Biden has made union support one of the foundations of his re-election campaign, and it appears that his strategy is paying immediate dividends. Within a week of Biden’s public opposition to the acquisition, the United Steelworkers union endorsed Biden for re-election. If the deal successfully passes regulatory hurdles, however, Republicans will likely use the foreign takeover to claim that Biden has failed to protect American jobs. Donald Trump, when asked about the acquisition, said that he would “block it instantaneously.”
These strong political motivations threaten the integrity of the regulatory process. Legally, President Biden can only stop the acquisition should CFIUS refer the matter to him and there is strong evidence that the transaction “threatens to impair national security.” Thomas P. Freddo, the former head of the CFIUS, argues that a presidential prohibition of the acquisition would “signal that national security is whatever the president says it is, making CFIUS a secretive, arbitrary, and capricious tool for the party in power.”
While blocking the deal has immediate political benefits, it may have long-term negative impacts on America’s position as the top destination for foreign investment. With no direct national security threat, ruling against the Nippon acquisition would turn the already enigmatic CFIUS investigation process into an instrument for political advancement.