U.S. Steel shares nosedived on Wednesday, dropping nearly 25% as concerns grew over its $14.1 billion merger with Japan’s Nippon Steel.
The stock’s plunge followed a Washington Post report suggesting President Joe Biden might block the acquisition, sparking fears that the deal could fall apart entirely.
At the heart of the issue is the Committee on Foreign Investments in the U.S. (CFIUS), which is reviewing the merger for national security concerns.
The White House downplayed the report but confirmed that the CFIUS decision is crucial.
The Justice Department is also reviewing potential antitrust concerns.
Insiders indicate Biden may block the deal as soon as the CFIUS review is complete, potentially as early as this week.
If the deal fails, it could have significant repercussions for U.S. Steel’s future.
Political Resistance
Opposition to the merger has been growing.
President Biden and both Pennsylvania senators have expressed concerns, alongside the United Steelworkers (USW) union, which supports keeping U.S. Steel domestically owned.
Vice President Kamala Harris also backed the union’s stance during a Labor Day event in Pittsburgh, highlighting the importance of the steel industry to national security.
The USW praised Harris’ comments, emphasizing the need for the company to “remain domestically owned and operated,” recognizing the importance of safeguarding jobs and supporting communities tied to the steel industry.
Former President Donald Trump has also said he would block the deal if re-elected.
“The deal’s been driven by politics,” said Jonathan Grady, founder of consultancy Canary Group. “Nippon Steel didn’t fully understand the political landscape they entered, attempting to buy a Pennsylvania steel company during an election year.”
Others share this view. “The financials almost don’t matter anymore,” said Roy Behren of Westchester Capital, whose firm holds a $125 million stake in U.S. Steel. “It’s all about politics now.”
Behren worries that a presidential veto could significantly impact U.S. Steel, which he described as “a declining company in a declining industry.”
Should the deal collapse, thousands of jobs could be at risk, with several blast furnace facilities potentially closing.
A Steel Giant’s Plea
U.S. Steel is fighting to keep the merger alive.
CEO David Burritt has urged decision-makers to consider the “unavoidable consequences” of blocking the deal, warning that it could lead to the company moving its headquarters out of Pittsburgh.
Nippon Steel has committed to investing $3 billion into U.S. Steel’s union-represented plants, an investment Burritt says could “transform” the company and secure jobs for future generations.
Without the deal, U.S. Steel lacks the resources for such transformative investments.
The future of the business now seems uncertain. With Nippon Steel agreeing to delay the merger’s closing date by three months at the Department of Justice’s request, the outcome could depend on the November election.
Grady believes this delay may benefit Nippon, as the USW’s bargaining power could diminish after Election Day.
U.S. Steel, like its stock price, remains in limbo.
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