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The early 1990s saw an ugly US populist backlash against Japan’s acquisition push of American assets. That era seems to have partially returned. On Tuesday, the Financial Times reported that President Joe Biden would soon express his discomfort with Nippon Steel’s pending $15bn acquisition for US Steel, once a national icon.
Biden is not expected to explicitly invoke his ability to cancel the transaction. But even a subtle intervention could prove fatal. The United Steelworkers labour union, which represents more than 1mn workers, preferred a domestic bidder, Cleveland Cliffs, during the 2023 US Steel auction.
Workers have not warmed to Nippon since December, when the Japanese company prevailed with an all-cash bid that reflected a more than 100 per cent premium paid. Nippon’s existing operations in the US are limited, but the combined company would be one of the 10 largest steelmakers in the world.
The relevant regulatory body reviewing the transaction, the inter-agency Committee on Foreign Investment in the US panel, handles national security concerns. But there has been little to no explanation of how Japan, a close ally of the US, could pose a meaningful threat.
Shares of US Steel fell sharply on Wednesday, dropping more than a quarter below the Nippon deal price.
Securities filings show that US Steel believed that the Cfius risk associated with Nippon was manageable. Moreover, it appeared worried that Cleveland Cliffs’ bid carried greater antitrust risk and that overlapping operations could require meaningful divestitures if not a full deal termination. There is also the fact that Cleveland Cliffs could pay far less than Nippon, even using its own shares.
The existing agreement that steelworkers have with US Steel is supposed to be honoured by Nippon. Steelworkers do not have an official veto power over the buyout, either. They are, however, flexing their political muscle in an election year. Biden’s predecessor and opponent, Donald Trump, has vowed to block the Nippon deal. He personally quashed a deal between chip titans Qualcomm and Broadcom over nebulous national security concerns.
Biden has maintained that his presidency respects the law and the so-called rules-based order in a way that his rival does not. Such adherence to principle will require crossing his constituencies on occasion. It is up to his administration to articulate how a Nippon acquisition breaches any national security standards. So far, the case is not convincing.
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