US President Joe Biden is officially preparing to block Nippon Steel's proposed $14.9 billion purchase of US Steel, a person familiar with the matter said on Friday, potentially dealing a fatal blow to the controversial merger plan.
The Committee on Foreign Investment in the United States spent months reviewing the deal due to national security risks, but referred the decision to Biden in December, after failing to reach consensus.
He could issue his decision on Friday, despite concerns from some of his senior advisers that it could harm relations with Tokyo, a key Asian ally, according to The Washington Post, which first reported the news.
The newspaper quoted two administration officials who were not authorized to speak publicly about this matter.
Shares of US Steel fell 7.8% in pre-market trading following the reports. The Japanese stock market was closed on Friday for a public holiday.
Spokesmen for the White House and Nippon Steel declined to comment.
US Steel told Reuters in its Thursday statement that it hopes Biden “will do the right thing and abide by the law by approving a deal that clearly strengthens America's national and economic security.”
Nippon paid a large premium to acquire the second-largest US steel producer at an auction in December 2023, but the deal faced opposition from the powerful United Steelworkers union, as well as politicians.
Biden has previously said he wants US Steel to remain domestically owned and operated, while President-elect Donald Trump has pledged to prevent foreign takeovers of the iconic US company after taking office on January 20.
Risky business
In a letter sent in November, Japanese Prime Minister Shigeru Ishiba urged Biden to approve the merger to avoid spoiling recent efforts to strengthen relations between the two countries, Reuters reported exclusively.
An Ishiba spokesman could not be reached for comment on Friday, and Japan's Trade Ministry declined to comment, saying there had been no official announcement of the decision.
Japan is a key US ally in the Indo-Pacific region, where China's economic and military rise has raised concerns in Washington, along with threats from North Korea.
It is also the largest investor in the United States, and Keidanren, its top business lobby, has previously expressed concerns that the review faces political pressure.
Blocking the deal could discourage international investors from bidding for politically sensitive U.S. companies with a unionized workforce in the short term, said Alistair Ramsay, vice president of steel research at Rystad Energy, a consultancy.
“Large bids are a risky idea less than 12 months before the presidential election, but major steel producers with conventional furnaces, such as Nippon Steel, see the United States as an excellent place for long-term steel production, despite the depressed market there,” he added. .
Nippon has pledged to fight any decision in the courts to stop the deal, but lawyers including Nick Wall, a mergers and acquisitions partner at Allen & Overy, said any such legal challenge against the US government would be difficult.
The two companies sought to allay concerns about the merger. Nippon offered to move its headquarters in the United States to the city of Pittsburgh, where the American steel industry is based, and promised to respect all agreements concluded between US Steel and USW.
This week, a source familiar with the matter said Nippon Steel also proposed giving the US government veto power over any potential cuts to US Steel's production capacity, as part of its efforts to gain Biden's approval.
“It is difficult to fully understand the risks involved in Nippon Steel's potential acquisition of US Steel,” said a Japanese government official, who spoke on condition of anonymity, as did the other sources.
“Nippon Steel has done everything it can to eliminate risks related to economic securities, including committing not to cut production.”
Nippon Steel faces a $565 million fine from US Steel after the deal collapsed, which could prompt it to dramatically rethink its overseas-focused growth strategy.
With the acquisition of US Steel, Nippon Steel was aiming to raise its global production capacity to 85 million metric tons per year from 65 million now, moving closer to its long-term goal of raising its capacity to 100 million tons.
US Steel previously said the failure of the deal would put thousands of jobs at risk and it may be forced to close some steel plants, an assertion the USW called unfounded threats and intimidation.
But Attila Wednell, managing director at Singapore-based business consultancy Navigate Commodities, said any decision to block the deal was “misguided.”
“Nippon Steel is a bona fide operator of offshore assets with a long and successful track record,” Wednell said.
“What’s more, US Steel has acknowledged that its assets are in urgent need of large-scale new investment and will not be able to maintain its operational and production capacity in its current state.”
