by Steve Pavlick
The potential sale of one of America’s largest domestic steel producers, U.S. Steel, has raised eyebrows among lawmakers in key battleground states and even garnered the attention of the White House.
Buy, Sell or Hold
In December, Nippon Steel, the largest steel producer in Japan and fourth largest globally, announced plans to acquire U.S. Steel for $55 per share for a total of roughly $14 billion. In August, Cleveland-Cliffs, a steel producer based in Ohio, made a $35 per share offer for U.S. Steel but eventually upped the amount to nearly match the Nippon offer at $54 per share.
The Cleveland-Cliffs higher offer is still about $220 million less than Nippon’s all-cash offer.
The prospect of losing one of the largest domestic steel producers to a foreign-controlled entity has raised concern among politicians and policymakers. U.S. Steel is an iconic American company founded in 1901 by legendary industrialists J.P. Morgan and Andrew Carnegie.
It is also located in Pittsburgh, Pennsylvania, which will be at the heart of determining who wins the crucial 2024 battleground state and potentially the presidential election.
United Steelworks Can Stop The Merger
In August, Axios reported that United Steelworkers (USW) has a contractual right to bid on U.S. Steel or particular assets once they have been put up for sale. The union announced that it transferred those rights to Cleveland-Cliffs.
In a press release U.S. Steel notes that Nippon Steel has agreed to honor the collective bargaining agreements with its unionized workers. While United Steelworkers (USW) International President David McCall released a statement critical of the deal, he did not completely shut the door on supporting the deal. It’s possible USW may see an opportunity to secure additional concessions, something other unions have done recently.
Presidential Politics
Joe Biden’s re-election campaign depends on winning support from organized labor, so expect his administration to do whatever the union wants. If the USW can leverage the deal to gain more favorable terms and support it, Biden will likely approve it after the election.
If the USW does not back the deal, Biden will oppose it. USW may not yet know what it wants to ask for, so Biden may be in a similar wait-and-see mode.
On Feb. 1, The Hill reported that Donald Trump vowed to block the Nippon’s acquisition of U.S. Steel if he secures a second term. After meeting with the Teamsters union in Washington, Trump told reporters, “I would block it. I think it’s a horrible thing. When Japan buys U.S. Steel, I would block it instantaneously. Absolutely.”
In addition, third-party presidential candidate Robert F. Kennedy Jr. wrote an opinion piece in Newsweek on the matter, saying, “I am opposed to the sale for a number of reasons,” before blaming U.S. Steel management for prioritizing profits at the expense of the workers.
Regulatory Review
U.S. Steel in a preliminary proxy statement claimed the deciding factor in selecting the bid from Nippon over Cleveland-Cliffs was driven by regulatory approval, not price. Specifically, U.S. Steel determined that its odds of withstanding regulatory approval for national security concerns from the Committee on Foreign Investment in the U.S. (CFIUS) were better than surviving an antitrust review from the Department of Justice.
On Jan. 11, Bloomberg cited “people familiar with the matter” in reporting that a U.S. national security review of the deal is unlikely to conclude until late this year and may extend into 2025. Basically, no decision until after the election. That timeline contradicts with statements from U.S. Steel and Nippon who said they expect to complete the $14.1 billion transaction by the spring or summer.
Battleground Senate Politics
In December, Pennsylvania Sen. Bob Casey joined Sen. John Fetterman and Rep. Chris Deluzio in sending a letter to Treasury Secretary Janet Yellen requesting that CFIUS block the transaction. This was followed by a similar letter from Democratic Ohio Senator Sherrod Brown urging President Joe Biden to use CIFUS in reviewing the deal “to ensure the future of U.S. steel is one that benefits American workers and the U.S. economy.”
This caused White House economic advisor Lael Brainard to release a statement saying her boss, Joe Biden, “believes the purchase of this iconic American-owned company by a foreign entity — even one from a close ally — appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability.”
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Steve Pavlick is a Partner & Head of Policy at Renaissance Macro and a former Treasury official.
Photo “U.S. Steel Factory” by U.S. Steel.
