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Macro

Biden's Unease Shakes $15bn Steel Deal, Shares Tumble

Biden's intervention in Nippon's $15 billion US Steel deal raises political and national security concerns amid market turmoil.

By Mackenzie Crow

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3/13, 18:59 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Cleveland-Cliffs Inc.
United States Steel Corporation

Key Takeaway

  • President Biden's discomfort with Nippon Steel's $15bn acquisition of US Steel raises concerns, despite no explicit move to block the deal.
  • US Steel shares fell sharply, over a quarter below the Nippon deal price, amid political and union pressures.
  • The situation tests Biden's commitment to a rules-based order against domestic and political interests.

Biden's Discomfort with Nippon's US Steel Acquisition

President Joe Biden is reportedly set to express his concerns regarding Nippon Steel's proposed $15 billion acquisition of US Steel, a deal that has reignited memories of the early 1990s US populist backlash against Japanese investments in American assets. Despite not planning to use his authority to cancel the transaction outright, Biden's subtle intervention could significantly impact the deal's outcome. The United Steelworkers labor union, representing over 1 million workers, showed a preference for a domestic bidder, Cleveland Cliffs, highlighting a lack of warmth towards Nippon since their winning bid in December, which offered a more than 100% premium.

Market Reaction and Regulatory Scrutiny

Following the news, US Steel's shares plummeted, falling more than a quarter below the price offered by Nippon. This market reaction underscores the financial community's sensitivity to political and regulatory uncertainties surrounding major acquisitions. The Committee on Foreign Investment in the US (CFIUS), tasked with reviewing the transaction for national security concerns, faces scrutiny over how Japan, a close ally of the US, could pose a national security threat through this acquisition. Securities filings revealed US Steel's belief in manageable CFIUS risks with Nippon, contrasting with potential antitrust issues and lower valuation concerns associated with Cleveland Cliffs' bid.

Political Dynamics and National Security Concerns

The political landscape adds another layer of complexity to the Nippon-US Steel deal. With the United Steelworkers leveraging their influence in an election year and former President Donald Trump vowing to block the transaction, citing national security, the Biden administration faces a delicate balancing act. Upholding a rules-based order while navigating the political implications of foreign acquisitions in critical industries poses a significant challenge. The administration must clarify how the Nippon acquisition could breach national security standards, a case that remains unconvincing to many observers.