U.S. Steel shares plunged Wednesday as Wall Street questioned whether its $14.1 billion deal with Japan’s Nippon Steel is at risk of unraveling.
U.S. Steel’s stock price plunged as much as 25% in afternoon trading and was briefly halted after the Washington Post reported that President Joe Biden is preparing to formally block the proposed acquisition. The shares fell $53.99, or nearly 25%, to close at $166.
The White House downplayed the Post report, which cited three people familiar with the president’s plans. In a statement, it cited an ongoing process by the Committee on Foreign Investments in the United States, or CFIUS, which is chaired by the Treasury secretary. CFIUS is reviewing the deal for potential national security concerns and could advise against the merger. The Justice Department is also looking into possible antitrust issues.
“CFIUS hasn’t transmitted a recommendation to the president, and that’s the next step in this process,” a White House official stated.
Mr. Biden plans to block the deal as soon as he receives the CFIUS decision, according to Bloomberg News, citing people familiar with the matter. A finding by the panel could come as early as this week, according to the wire service.
Opposition building
U.S. Steel, the country’s third-biggest steel maker, is working to salvage its proposed takeover by Nippon Steel, opposed for months by Mr. Biden as well as more recently by both major candidates vying to replace him. The merger is also opposed by the United Steelworkers (USW) union, Pennsylvania Governor Josh Shapiro and both of the state’s senators.
Vice President Kamala Harris voiced her support for keeping the iconic company domestically owned and operated during a Labor Day event in Pittsburgh on Monday.
The USW welcomed Harris’ call for U.S. Steel to “remain domestically owned and operated,” the union stated.
Harris “understands the crucial role of the steel industry, not only when it comes to safeguarding our national security, but also to ensuring a brighter future for the workers and communities that depend on good, union jobs,” USW International President David McCall said.
Donald Trump also has promised to block the deal if elected.
“Driven by politics”
The Japanese players appear not to be fully aware of the situation they got themselves in, buying a Pennsylvania steel company in the middle of a presidential election,” Jonathan Grady, the founding principal of the consultancy firm Canary Group, told CBS MoneyWatch.
“It’s a very complex, nuanced deal driven by politics — the financials almost don’t matter at this point,” said Grady, who has analyzed the deal for investors.
“The whole election atmosphere to me makes it a little more tenuous than it should be,” said Roy Behren, co-president and co-CIO of Westchester Capital Management, which has $4 billion of assets under management, over 90% invested in merger arbitrage.
“The only thing that could come up and potentially block this is a presidential order,” added Behren, whose firm holds a $125 million position in U.S. Steel. “It doesn’t make sense to me, to wave the flag as a reason to block the deal,” he said, noting that Nippon Steel represents a cash-laden lifesaver to a “declining company in a declining industry.”
If the deal falls apart, U.S. Steel would have to close many of its blast furnace facilities, endangering thousands of jobs and making it more difficult to compete globally, the company warned Wednesday in a news release.
“We want elected leaders and other key decision makers to recognize the benefits of the deal as well as the unavoidable consequences if the deal fails,” said David Burritt, president and CEO of Pittsburgh-based U.S. Steel.
The steelmaker also warned that the merger’s failure would raise questions as to whether the company remains headquartered in Pittsburgh.
U.S. Steel spokesperson Amanda Malkowski told the Associated Press in an email that the company had not received any update on the process and that the company sees “no national security issues associated with this transaction, as Japan is one of our most staunch allies.”
“We fully expect to pursue all possible options under the law to ensure this transaction, which is best future for Pennsylvania, American steelmaking, and all of our stakeholders, closes,” Malkowski added.
U.S. Steel has said the transaction would strengthen the company and make the American steel industry more competitive globally.
“Nippon Steel has committed to investing nearly $3 billion in our union-represented facilities. These investments would be truly transformative, securing jobs for generations of steelmakers in Western Pennsylvania and represent an influx of capital that U. S. Steel simply would not pursue absent the transaction with Nippon,” a spokesperson for U.S. Steel said. “Nippon Steel is a long-standing operator and investor in steel facilities in the U.S., including Pennsylvania,” the spokesperson said.
Tokyo-based Nippon Steel in May said it was postponing the expected merger closing by three months after the Department of Justice requested more documents related to the deal. The new timing could push the closing beyond the election, a scenario that Grady said would give the Japanese company the upper hand with its union workers.
“Nippon wants to play this out until after Election Day and give piecemeal consideration, compared to what the union wants,” said Grady, who noted the the USW’s bargaining power is strongest ahead November.
