Nippon Steel’s effort to acquire U.S. Steel is shaping up to be a brutal battle, with massive corporations, an angry union and the world’s most powerful governments digging in and seeking to advance their own interests, all in the context of one of the most contentious elections in the United States ever.
Through it all, analysts and informed observers have been gaming out the possible outcomes and adding up the potential damage. They are also offering opinions about the best way forward in a transaction that could set a dangerous precedent and has the potential to upset the global order.
What is emerging is a consensus around a pragmatic, bespoke approach that will demonstrate that a rejection of the deal by the U.S. government would be a one-off and would not signal new thinking about how transactions are approved.
The United States should communicate clearly that any action taken over Nippon Steel’s attempted acquisition of U.S. Steel is not an indication of a fundamental change in American policy on foreign investment, argued Sarah Bauerle Danzman, a professor at Indiana University.
“It needs to ensure that its allies and partners believe that this is an aberration rather than an indication that the U.S. government is changing its stance more generally towards foreign investment,” she said.
According to Bauerle Danzman, a rejection of the deal might indicate that the U.S. Committee on Foreign Investment in the U.S. (CFIUS) has altered its parameters for approvals, or worse, that the committee has been politicized and that it is working backward from the wishes of politicians to find a reason to nix a transaction.
“From a pragmatic political perspective, it might make sense for the U.S. government to not allow this transaction to go through particularly at this stage of the electoral cycle. But it needs to be honest with its allies and partners why that is the case, rather than coming up with arguments that beggar belief,” said Bauerle Danzman, who is also a resident senior fellow at the Atlantic Council specializing in CFIUS.
Once a regulatory body is politicized, it can be exceedingly difficult to return to normal, technocratic operations, she added.
In April, shareholders of Pittsburgh’s U.S. Steel approved Nippon Steel’s proposed $14.9 billion acquisition of the company.
According to news reports, CFIUS told Nippon Steel its proposed acquisition poses a threat to national security, as it may lead to a reduction of production capacity domestically. It is now up to U.S. President Joe Biden, and reports indicate he will accept the recommendation.
Vice President Kamala Harris and former President Donald Trump, both candidates for president, have also said they will reject the deal.
“I thought that politically it was kind of a standoff, but apparently the administration of the Democratic Party decided that a standoff wasn't good enough, that they should take some positive action to try to win the votes in Pennsylvania,” said Bruce Aronson, a senior advisor at New York University’s U.S.-Japan Law Institute.
Nippon Steel rejects claims that what it is doing endangers the United States and argues that the transaction is a win-win.
“As we’ve always said, this acquisition is a good deal for both the United States and U.S. Steel. It is not something that raises any national security concerns,” said Kayo Kikuchi, a Nippon Steel spokesperson.
In addition to the $14.9 billion offer, Nippon Steel announced on Aug. 29 that it will make an additional $1.3 billion investment to modernize U.S. Steel mills in addition to the $1.4 billion it has already promised to invest through 2026.
On Wednesday, the company published a record of communications related to the transaction online, and Nippon Steel executives met with senior U.S. officials on Wednesday in a last-minute effort to salvage the deal, the Financial Times reported.
“The bottom line about this merger is that it jeopardizes national security and critical supply chains,” said United Steelworkers President David McCall, in a Wednesday statement to The Japan Times.
“We have already provided our members with Nippon’s proposals, all of which show that Nippon Steel has always sought to hide behind its shell company and couch its purported commitments about job security and capital investments in so many conditions as to make their promises worthless,” he added, while criticizing the two companies for “politicizing the situation in a last-ditch attempt to save the deal,” without elaborating further.
The possibility that the acquisition will be rejected set off a firestorm globally, with critics saying the move would run counter to long-standing U.S. commitments to open markets and friendly relations, and that would add an element of uncertainty to business and diplomatic interactions that require an element of stability and predictability.
They have noted that Japan is fully cooperating with the U.S. on addressing military and economic national security threats, and argue that a rejection sets a bad precedent and could discourage further investment by companies from Japan and elsewhere.
“In reality, I think Japan is quite frustrated. It’s as if, despite all their cooperation, their ally is betraying them,” said Takahide Kiuchi, an economist at Nomura Research Institute and a former member of the Bank of Japan’s Policy Board. “In the long run, this will be a headwind and a negative for the U.S. economy.”
Aronson believes that a rejection of the deal could ultimately harm U.S. Steel, the interests of U.S. workers and the economy overall.
“I don’t think it will be a total calamity, but there’ll be some fallout,” he said. “I think all the parties will be worse off than they are now, including the steelworkers union.”
Aronson notes that it’s hard to say that U.S. Steel products are vital to the U.S. military and wonders whether there’s anything of substance at all to the concerns that could trigger the action against Nippon Steel.
“It seems to be extremely sensitive to a national security interest that doesn't seem very concrete,” he said of CFIUS.
Several American business groups told U.S. Treasury Secretary Janet Yellen — who oversees CFIUS — in a letter Wednesday that the committee's move to block the transaction due to political pressure will "put the U.S. economy and workers at risk."
The Japanese government has been relatively quiet over the possible scuttling of the deal, making only the vaguest of comments and emphasizing the positives of the acquisition to both countries. Some political candidates have objected to the U.S. government intervening in the affairs of a private company, while individuals in the current government have gingerly sidestepped the issue.
In the weeks since news broke of Biden’s anticipated rejection of the deal, realpolitik has taken hold, and both sides are looking for practical ways to move forward without backing down.
Aronson said that one scenario envisioned by observers might be a delay followed by approval after the election on Nov. 7. But the recent turn of events has suddenly made it “up in the air, and now no one has any idea.”
Bauerle Danzman argues for positive and proactive engagement on the part of the United States to make sure that the lasting effects of the U.S. Steel affair are minimal.
“It needs to spend quite a bit of time engaging in diplomacy, reassuring its partners that this particular transaction is different and to be as clear as possible about why this transaction was blocked and what kinds of other transactions would not be blocked,” she said.
It should remind counterparties that the committee reviews hundreds of transactions every year, and the majority of them are approved without any mitigation measures, she added.
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