Biden plans to block takeover bid of US steel by Japan's Nippon

The Committee on Foreign Investment in the United States (CFIUS) spent months reviewing the deal for national security risks but referred the decision to Biden in December, after failing to reach consensus.

Washington: President Joe Biden has decided to block the $14 billion takeover of US Steel by Nippon Steel of Japan in an announcement expected as soon as Friday based on grounds that the sale poses a threat to national security, according to people familiar with the matter.

The decision would be an extraordinary use of executive power, particularly for a president who is just weeks from leaving office. It is also a departure from America's long-established culture of open investment, one that could have wide-ranging implications for the U.S. economy.

Biden's move to stop the transaction could cause foreign investors to rethink the wisdom of acquiring American firms in sensitive industries that are based in politically important states. It could also roil relations with Japan, a close ally of the United States and one of America's largest sources of foreign investment.

The president's decision to block the deal came after a federal committee reviewing the transaction opted to not make a formal recommendation about whether the takeover should be allowed to proceed, according to letters sent to the companies and the White House last month.

The Committee of Foreign Investment in the United States, which is made up of agencies including the departments of Treasury and Justice, expressed reservations about the deal to the companies in a letter last month. CFIUS (pronounced SIFF-ee-yuhs) voiced concerns that the transaction could pose a national security threat to the United States by potentially leading to a decline in American steel production. The officials suggested that Nippon's other global business considerations could in the future outweigh its pledges to invest in U.S. Steel.

The lack of a formal recommendation cleared the way for Biden, barring an unexpected change of heart, to end a transaction that became ensnared in election-year politics.

But that decision could face challenges in court. Nippon had indicated that it was prepared to take legal action if the deal was blocked.

Nippon sent a letter to CFIUS last month that accused the White House of "impermissible influence" in the process. Nippon said the concerns raised by CFIUS were "littered with factual inaccuracies and omissions, misleading and incomplete statements, conjecture and hypotheticals that have no basis in fact and are plainly illogical."

US Steel has also continued to push for the deal. After CFIUS failed to make a formal recommendation, the company issued a statement saying that the deal "is the best way, by far, to ensure that U.S. Steel, including its employees, communities and customers, will thrive well into the future."

CBS News reported earlier that a decision could come as early as Friday.

The politics of Biden's decision were clear: U.S. Steel is based in the crucial swing state of Pennsylvania, and its powerful union vehemently opposed the proposed takeover, in part over concerns that Nippon would not honor its commitments to invest in plants and preserve the pensions of workers. The public debate over the acquisition emerged as a key issue before the 2024 presidential election, and Biden, Vice President Kamala Harris and President-elect Donald Trump all publicly said that U.S. Steel should remain American-owned.

Before the election, the Biden administration granted the companies an additional three months to try to address concerns about the deal. By December, however, it was clear that the deal was most likely doomed when CFIUS told Nippon that federal agencies were divided over whether it should proceed, and after Trump declared that he would block it upon taking office.

"As President, I will block this deal from happening," Trump said on social media. "Buyer Beware!!!"

Despite his opposition to the steel deal, Trump last month welcomed a $100 billion investment in the United States pledged by SoftBank, a Japanese technology company, that will focus on technology and artificial intelligence over the next four years.

The bid by Nippon faced political opposition from the moment it was announced in December 2023. Democratic senators including Sherrod Brown of Ohio and Bob Casey of Pennsylvania, along with Sen. JD Vance, R-Ohio, who is now the vice president-elect, urged Biden to review the proposed sale to guard against lost steel production and jobs. Both Brown and Casey lost their seats to Republican challengers in November.

Shortly before last Christmas, the Biden administration appeared to bend to the concerns being voiced by lawmakers, with Lael Brainard, the director of the National Economic Council, issuing a statement saying that the transaction "appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability."

While US Steel shareholders approved the deal in April, the likelihood that it would happen dimmed as the presidential election grew closer.

US Steel, which was founded in 1901, has for years faced financial struggles amid the changing dynamics of global metal markets and rapidly evolving technology, which the company was often slow to adopt. The company, whose metal has been used to build some of the nation's most famous bridges and buildings -- such as the Willis Tower in Chicago and the United Nations building in New York -- employed 340,000 workers at its peak in the 1940s but now has around 20,000 workers overall, with about 4,000 in Pennsylvania.

A post-pandemic boost to the steel market, which stemmed from a combination of shortages and demand spurred by federal infrastructure investments, had been showing signs of cooling amid worries of a global economic slowdown. In 2023, a U.S. Steel rival, Ohio-based Cleveland-Cliffs, made an unsolicited offer to buy its competitor. That set off a bidding war that Nippon won.

As the fourth-largest steelmaker in the world, Nippon saw an opportunity to grow even larger and gain access to the American market with the purchase of US Steel. With large federal investments in infrastructure and climate technology in the works, the United States has been viewed as a growth market where steel demand will rise over the coming years.

But the United Steelworkers union quickly came out against the agreement. The union claimed to have been blindsided by the company's management and argued that Nippon was unlikely to honor the union's contracts and protect worker pensions. Nippon has said that it will honor existing contract commitments.

Early last year, Trump said U.S. Steel needed to remain in American hands. Trump, who enacted sweeping tariffs on foreign steel imports from allies like Mexico, Canada and Europe during his first term, said that preventing a Japanese company from buying U.S. Steel was a matter of preserving America's industrial heritage.

Biden, under political pressure, echoed that sentiment in April, insisting that U.S. Steel remain American-owned and operated. Over Labor Day weekend, Harris, who had replaced Biden as the Democratic nominee, repeated that message.

Not everyone, however, opposed the deal. Many U.S. Steel workers came out in support of it, arguing that the company desperately needed the investment. Last month, three members of the Congressional Black Caucus sent a letter to the White House making the case that the transaction was important for the future of American manufacturing.

And Mike Pompeo, who served as Trump's secretary of state in his first term and who has been advising Nippon, wrote in The Wall Street Journal that the deal would allow the United States to challenge China's global steel dominance.

The fate of the company remains uncertain, and efforts to preserve its American roots could end up harming workers in Pennsylvania in the long run.

Nippon had pledged to keep the company's headquarters in Pittsburgh and invest in upgrading mills in the state. U.S. Steel executives have warned that without Nippon, it might have to lay off workers, relocate the headquarters and invest in mills that it has been building in the South. The company received several additional takeover offers, and it remains possible that one could be revived.