WASHINGTON - US President Joe Biden on Friday followed through on his pledge to block Nippon Steel’s $14.9-billion bid for US Steel, citing concerns that the deal could hurt national security.
The move, long expected, cuts off a critical lifeline of capital for the beleaguered American icon, which has said it would have to idle key mills without the nearly $3 billion in promised investment from the Japanese company.
It also represents the final chapter in a high-profile national security review, led by the Committee on Foreign Investment in the United States, which vets investments for national security risks.
“US Steel will remain a proud American company — one that’s American-owned, American-operated, by American union steelworkers — the best in the world,” the president said in a statement.
Shares of US Steel dropped 8% during early trading on Friday to $30.00 in New York.
The companies have signalled that they may challenge the legal grounds of any rejection, raising the prospect that the matter will remain in dispute.
The proposed tie-up has faced high-level opposition within the United States since it was announced a year ago, with both Biden and his incoming successor Donald Trump taking aim at it as they sought to woo unionised voters in the swing state of Pennsylvania, where US Steel is headquartered. Trump and Biden both asserted that the company should remain American-owned.
Biden’s announcement was seen as a victory for United Steelworkers president David McCall and his union’s leadership, who have been vocally opposed to the deal.
However, many rank-and-file labour members — a lot of them Trump supporters — spoke out in favour of the deal as they felt it would improve their job security. Nippon Steel also said that it had encountered a lot of positive sentiment in the communities where US Steel mills are located.
The two companies had sought to assuage concerns over the merger. Nippon offered to move its US headquarters to Pittsburgh, where the US steelmaker is based, and promised to honour all agreements in place between US Steel and the union.
The merger appeared to be on the fast-track to be blocked after the companies received an Aug 31 letter from the investment review committeee, arguing that the deal could hurt the supply of steel needed for critical transport, construction and agriculture projects.
But Nippon Steel countered that its investments, made by a company from an allied nation, would in fact shore up US Steel’s output, and it won a 90-day review extension. That extension gave the committee until after the November election to make a decision, fuelling hope among supporters that a calmer political climate could help with approval.
But hopes were shattered in December when the committee set the stage for Biden to block it in a 29-page letter by raising allegedly unresolved national security risks, Reuters reported.
Japanese entreaties
Japanese Prime Minister Shigeru Ishiba in November urged Biden to approve the merger so as to avoid marring recent efforts to strengthen ties between the two countries.
Nippon Steel had aimed to raise its global output capacity to 85 million tonnes a year from 65 million now, nearing its long-term goal of taking capacity to 100 million tonnes.
US Steel has previously said the deal’s failure would put at risk thousands of jobs and it might be forced to close some mills, an assertion the union called a baseless threat and intimidation.
The president’s decision also raises difficult questions about the next steps for US Steel, which may have to restart the sale process, and could struggle to find a buyer for the entire company.
Cleveland-Cliffs Inc, based in neighbouring Ohio, pursued US Steel before Nippon Steel won the bidding, but it has since bought a Canadian producer and waffled on whether it would still want all or some of US Steel.
Nippon Steel, at the same time, will have to seek alternative sources of growth.
