This seems self-defeating. Unionized steelworkers have effectively blocked a takeover of U.S. Steel by Japan’s Nippon Steel, leaving U.S. Steel, a symbol of the American heartland, shrinking and without good options. U.S. Steel CEO David Barritt has said that without a takeover, the company would have to close its unionized plants and move them from Pittsburgh to non-union southern states.
But the whole issue is distorted by election-year politics, and a deal could still be reached if Japan doesn’t lose patience with U.S. idiosyncrasies. President Joe Biden, Vice President Kamala Harris and Republican presidential nominee Donald Trump are all opposed to a deal, but that could change once the election is over and the political fallout fades.
U.S. Steel began looking for a buyer last year to gain scale in a market now dominated by Chinese giants. Domestic steelmaker Cleveland-Cliffs offered the company $7.4 billion, followed a few months later by Nippon Steel Corp., which offered $14.9 billion, a premium that signaled strong interest in entering the U.S. market. U.S. Steel accepted Nippon Steel’s much better offer and said the deal is expected to close in 2024.
However, the Steelworkers’ union believed the Cleveland-Cliffs agreement better protected union jobs and supported the agreement, rejecting Nippon’s proposal as a token promise of jobs that left room for layoffs and plant closures.
Biden, who calls himself “the most pro-union president in American history,” swung the gauntlet in March when he said U.S. Steel should remain U.S.-owned. But the president can’t block the merger on his own volition. And antitrust laws don’t actually apply when a U.S. company merges with a foreign one. But the president does control the Committee on Foreign Investment in the United States (CFIUS), a mysterious agency that decides whether a foreign acquisition poses a national security threat. Biden is now trying to use that mechanism to block the Nippon acquisition.
U.S. Steel shares soared in December after reports that a Japanese oil company wanted to buy the company for double the amount Cleveland-Cliffs had offered, then plummeted in March when Biden signaled his opposition. The stock has since fluctuated wildly, falling further in late August after reports leaked that CFIUS planned to block the deal.
Japan is a close ally of the United States, and the premise that Japan could somehow threaten domestic steel supplies in the event of an emergency is tenuous at best, but CFIUS, run by Treasury Secretary Janet Yellen and several other Cabinet members, is an opaque decision-making body that can instigate national security rationales if the president so desires for political reasons.
And Biden and Harris almost certainly will. U.S. Steel employs about 3,000 steelworkers in Pennsylvania, and the steel industry as a whole may account for more than 100,000 jobs in the state. That may not seem like a lot, but it could be crucial from an electoral standpoint.
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To get to the White House, Harris, the Democratic presidential nominee, would likely need to win Pennsylvania and its 19 electoral votes. Biden won the state by 81,660 votes in 2020, and some indicators suggest Trump is likely to perform better in Pennsylvania in 2024 than he did four years ago. That means Democrats who want to keep the White House will want to cater to Pennsylvania steelworkers and win their votes in return.
But after the election, the Steelworkers’ influence may be weakened, opening new avenues for a takeover of Nippon. And there is ample precedent for foreign takeovers that stumbled at first but ultimately succeeded.
“What often happens with CFIUS is that the government reviews the case and says, ‘If you withdraw your application, let’s see if we can resolve this issue through discussion,'” explains William Reinsch, a senior adviser at the Center for Strategic and International Studies and a former undersecretary of commerce. “But the only way this will go through is if the unions are happy and say so.”
Such deals with foreign buyers, known as “mitigation agreements,” are typically conducted behind the scenes with little or no public attention. In Japan’s case, election-related public posturing has added new complications.
If Nippon wants to stay in the race, it will probably have to offer new guarantees to protect union members’ jobs, without the get-out clauses the union has previously complained about. Nippon recently announced plans to invest $1 billion in U.S. Steel’s Pennsylvania plant and $300 million in its Indiana plant, which could be a down payment on further favorable terms.
Nippon may also need Harris to win in November to get the deal done. If Harris wins, Nippon gives in, and the steelworkers’ unions buy in, Biden’s CFIUS could make some spurious changes to the deal to satisfy national security concerns and approve the acquisition during the lame-duck period after the election. Or a new CFIUS under Harris could do essentially the same thing.
In contrast, Trump is adamantly opposed to the deal and seems unwilling to change his mind. His “America First” policy has an ideological bias against foreign involvement in the US economy, and he regularly singles out steelworkers as emblematic American workers who should never serve foreign masters. Case closed.
The Cleveland-Cliffs proposal may not be an alternative either: In July, Cleveland-Cliffs announced plans, with union approval, to buy Canadian steelmaker Stelco for $2.8 billion, which may satisfy consolidation concerns for now.
If Japan tires of the American machinations and gives up on its purchase of US Steel, the threats of relocation and union destruction may be tested. The unions are clearly taking risks. But a wise move for all sides might be to wait a few months and see what changes once the election is over.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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