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Proposed acquisition of U.S. Steel by Nippon Steel
Initiator Nippon Steel
Target U.S. Steel
Type All-cash full acquisition
Cost US$14.9 billion (including debt)
InitiatedDecember 18, 2023
StatusPending regulatory approval

On December 18, 2023, it was announced that Japanese steelmaker Nippon Steel (NSC) would acquire Pittsburgh–based U.S. Steel, a steel-producing company that was once the largest corporation in the world. [1] Under the deal, Nippon Steel would acquire the company for $14.1 billion, which totals to $14.9 billion when including the assumption of U.S. Steel's debt. [2]

The announcement of the proposed acquisition of U.S. Steel by a foreign company was met with controversy. On December 21, the White House indicated that the deal should be scrutinized over national security and supply chain resiliency concerns. [3] U.S. lawmakers from both major parties, also labor unions such as United Steelworkers (USW), have expressed their concerns about the proposed acquisition on similar grounds. [4] [5] On March 14, 2024, the Biden Administration made the decision to oppose the planned acquisition. [6]

Background

Further information: Steel crisis

U.S. Steel, formed by J. P. Morgan's merger of Carnegie Steel with other steel producers, was once the largest company in the United States. The Pittsburgh-based steelmaker once held the record for the largest initial public offering of any company in history and was added to the Dow Jones Industrial Average on its first day of public trading on the New York Stock Exchange, April 1, 1900. [7]

By the time of the announced deal, U.S. Steel was declining for decades. The first major decline happened during the Steel crisis of the 1970s, where America as a whole became a net steel importer. In response, U.S. Steel had to close its seven least efficient plants, with the company taking until 1989 to profitably export steel again. [8] The company was dropped from the Dow Jones in 1990. [9]

2023 bidding war

In August 2023, U.S. Steel became the target of a bidding war. [9] Cleveland-Cliffs was one of the first companies to make a bid, offering $7.8 billion to acquire the company. Cliffs proposed that it would split the deal by $17.50 in cash and just over 1 share's worth of Cliffs stock, which Cleveland-Cliffs presented as being worth $35 per share. The United Steelworkers (USW) union, which maintains a collective bargaining agreement with the company, endorsed Cliffs' offer as the "best strategic partner", as phrased by USW president David McCall. [10] U.S. Steel ultimately declined the deal, suggesting that Cliffs was attempting to prevent the company from conducting due diligence. [11] This offer was also strongly opposed by lobbyists for major automakers including Toyota and General Motors, who argued that the new company, if the deal were to go through, would monopolize steel frames used in new cars and increase automaker costs. [12]

Nucor, the largest steelmaker in the U.S. at the time of the deal with NSC, also was considered to be a potential suitor for U.S. Steel. A week prior to the NSC deal being announced, a corporate jet owned by U.S. Steel was spotted in Nucor's hometown of Charlotte, North Carolina, by Don Bilson, a corporate analyst for Gordon Haskett. The news caused the Pittsburgh steelmaker's stock to soar, though no comment from neither Nucor nor U.S. Steel was provided on the matter. [13]

Smaller and less significant bids additionally came in from other companies. Luxembourg's ArcelorMittal and Canada's Stelco (formerly a U.S. Steel subsidiary) also placed bids for the Pittsburgh steelmaker, as did a later-withdrawn bid by the privately-owned Esmark. [14]

Deal

On December 18, 2023, via a joint press conference from NSC's headquarters in Tokyo and U.S. Steel's headquarters in Pittsburgh, the companies announced that NSC would buy U.S. Steel for $55 per share at a 40% premium compared to the company's then-stock value. According to the press release published to U.S. Steel's investor website, Citigroup is acting as the financial advisor to NSC, with Ropes & Gray LLP is acting as the legal advisor for the Japanese steelmaker.

For U.S. Steel, their financial advisors for the transaction are Goldman Sachs, Evercore and Barclays, with Milbank LLP and Wachtell, Lipton, Rosen & Katz on board legal advisors to U.S. Steel. Additionally, the companies stated that U.S. Steel's headquarters as a subsidiary of Nippon Steel would remain in Pittsburgh, and that all existing collective bargaining and union agreements would be honored by NSC. [15]

The agreement included a clause requiring NSC to pay U.S. Steel a breakup fee of $565 million in the event of regulators calling off the acquisition. [16]

Deal timeframe

In a December 18, 2023 earnings call, U.S. Steel CEO David Burritt indicated to shareholders that the company anticipated the deal would be completed by the spring or summer of 2024. On January 11, 2024, Bloomberg News reported that unnamed insiders expect the dealmaking process to extend into late 2024 or 2025 as a result of regulatory scrutiny. Nippon Steel CEO Eiji Hashimoto indicated in a briefing that he anticipates the deal will be finalized prior to the November 2024 U.S. presidential election. [17] U.S. Steel shareholders approved the deal in April 2024, with over 98% of them voting in favor. [18]

Political reaction

Biden administration

On December 21, 2023, Lael Brainard, the director of the National Economic Council at the White House, indicated that President Joe Biden believes the proposed acquisition should be scrutinized. Brainard stated that Biden believes that the acquisition of an "iconic American-owned company by a foreign entity — even one from a close ally — appears to deserve serious scrutiny", citing potential national security and supply chain resiliency concerns.

Brainard indicated that the proposed acquisition would receive scrutiny from the Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee chaired by the Secretary of the Treasury. [3] The CFIUS has the power to approve the proposed acquisition or block or amend the deal on national security grounds, as well as the ability to give Biden final decision-making authority. [17]

On March 14, 2024, President Biden declared that U.S. Steel must remain American-owned, stating the proposed acquisition by Nippon Steel would pose a risk to national security, and also declared that he would also use U.S regulatory authorities to scuttle the deal. [19]

Japanese reaction

Prime Minister Fumio Kishida during a state visit to the US hoped that discussions would "unfold in directions that would be positive for both sides". [20]

Members of Congress

The proposed acquisition became subject to condemnation from both Democratic and Republican politicians. Republican US Senators J. D. Vance of Ohio, Josh Hawley of Missouri, and Marco Rubio of Florida indicated their opposition in a letter addressed to Secretary of the Treasury Janet Yellen. In the letter, they argued that enabling foreign companies to acquire crucial parts of American infrastructure would allow acquiring companies to avoid trade protections.

Separately, Ohio's other senator, Democrat Sherrod Brown, condemned NSC's acquisition due to its apparent neglect of union voices and how any potential sale of U.S. Steel should give union leaders a seat at the table; Brown, who was joined in his comments later by Pennsylvania Democratic senator John Fetterman, further endorsed a sale to Cleveland-Cliffs over NSC due to union endorsement. Retiring Democratic senator Joe Manchin from West Virginia further attacked the sale to NSC, echoing the three Republicans' national security concerns. [4]

Brown also pressed the White House to review Nippon Steel's ties to China. The Japanese steelmaker responded saying that its Chinese operations represented less than 5% of its total capacity. [21]

Lobbying efforts

In January 2024, Nippon Steel signed on Akin Gump Strauss Hauer & Feld (Akin Gump) to help the company navigate scrutiny of the proposed acquisition. Former Representatives Ileana Ros-Lehtinen (R-FL) and Filemon Vela Jr. (D- TX) are among the Akin Gump lobbyists working on the deal. On January 8, it was reported that U.S. Steel hired lobbyists at K&L Gates. [22] On January 11, it was reported that U.S. Steel also signed on lobbyists from Hogan Lovells, including former Senator Norm Coleman (R- MN). [23]

Other reactions

Labor unions

Despite the promise made by NSC to honor all active collective bargaining agreements, the United Steelworkers (USW) labor union starkly criticized the deal; unions previously preferred that Cleveland-Cliffs take over the steelmaker. The USW stated that its contract with U.S. Steel "requires any prospective buyer to agree to a new labor deal before a sale can be finalized", with union president David McCall further blasting the sale as "greedy". [5] In March 2024, USW International President David McCall would publicly praise President Biden's decision to keep U.S. Steel "domestically owned and operated," claiming that Biden "has our backs" and that the decision to oppose the planned acquisition by Nippon Steel "should end the debate." [24]

References

  1. ^ Delouya, Samantha (December 19, 2023). "These all-American brands aren't actually American | CNN Business". CNN. Retrieved December 21, 2023.
  2. ^ Burns, Tobias (December 19, 2023). "Lawmakers push to stop 'fundamentally troubling' sale of US Steel". The Hill. Retrieved December 20, 2023.
  3. ^ a b "Biden believes U.S. Steel sale to Japanese company warrants 'serious scrutiny,' White House says". AP News. December 21, 2023. Retrieved January 12, 2024.
  4. ^ a b Egan, Matt; Isidore, Chris (December 19, 2023). "Growing bipartisan opposition to US Steel purchase by Japanese might not be enough to block deal | CNN Business". CNN. Retrieved December 21, 2023.
  5. ^ a b Bomey, Nathan (December 18, 2023). "United Steelworkers union blasts $15B U.S. Steel-Nippon deal". Axios.
  6. ^ Egan, Matt (March 14, 2024). "Biden says it's 'vital' US Steel remain American owned and operated". CNN. Retrieved March 15, 2024.
  7. ^ "Dow Component U.S. Steel Was Biggest IPO of All Time". The Wall Street Journal. November 25, 1996.
  8. ^ Magnet, Myron. "THE RESURRECTION OF THE RUST BELT Deindustrialization? Economic violence? The heartland says humbug. When the going got tough, its industries shaped up. Now they're more competitive than ever". Fortune Archive. Fortune Magazine. Archived from the original on October 6, 2018. Retrieved October 5, 2018.
  9. ^ a b Isidore, Chris (December 18, 2023). "From powerhouse to afterthought: US Steel, once a symbol of America's economic might, set to be sold to Japanese rival | CNN Business". CNN. Retrieved December 21, 2023.
  10. ^ Flowers, Bianca (August 14, 2023). "Union leader: Cleveland-Cliffs is the best strategic buyer of U.S. Steel". Reuters.
  11. ^ "US Steel rejects a $7.3 billion offer from rival Cleveland-Cliffs; considers alternatives". AP News. August 14, 2023. Retrieved December 21, 2023.
  12. ^ Shepardson, David (October 31, 2023). "Automakers oppose Cleveland-Cliffs push to buy U.S. Steel". Reuters.
  13. ^ Root, Al. "U.S. Steel Stock Rises. Its Corporate Jet Was Spotted in Nucor's Hometown". barrons. Retrieved December 21, 2023.
  14. ^ Taylor, Brian (November 29, 2023). "US Steel bid rumors continue to swirl". www.recyclingtoday.com. Retrieved December 21, 2023.
  15. ^ Di, Xingsi (2023). "Insurmoutable Gap for Legal Personhood?- Metaphors for Robo-Advisors Acting as Fiduciaries". dx.doi.org. doi: 10.2139/ssrn.4551315. Retrieved January 9, 2024.
  16. ^ Roumeliotis, Greg (January 24, 2024). "Cleveland-Cliffs argued its US Steel bid was worth more than Nippon Steel's, filing shows". Reuters.
  17. ^ a b Wingrove, Josh; Jacobs, Jennifer; Deaux, Joe (January 11, 2024). "US Steel Review Expected to Last a Year or More, Defying Forecasts". Bloomberg News. Retrieved January 12, 2024.
  18. ^ "US Steel shareholders approve takeover by Japan's Nippon Steel opposed by Biden administration". Associated Press. April 12, 2024.
  19. ^ Hunnicutt, Trevor; Alper, Alexandra (March 14, 2024). "Biden says U.S. Steel must stay domestically owned, a major blow to Nippon Steel". Reuters. Retrieved March 15, 2024.
  20. ^ "The U.S. and Japan announce a historic upgrade in security ties to counter China". NBC News. April 10, 2024. Retrieved April 24, 2024.
  21. ^ Shepardson, David (April 3, 2024). "US senator urges Biden to review alleged Nippon Steel ties to China".
  22. ^ Oprysko, Caitlin (January 8, 2024). "Steel giants tap K Street heavyweights for help selling acquisition". POLITICO. Retrieved January 12, 2024.
  23. ^ Oprysko, Caitlin (January 11, 2024). "Norm Coleman lobbying on US Steel sale". POLITICO. Retrieved January 12, 2024.
  24. ^ "USW Welcomes Biden's Call for U.S. Steel to Remain Domestically Owned and Operated". United Steelworker. March 14, 2024. Retrieved March 15, 2024.
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