Rather,a press releaseon August 13, 2023, stated the steelmaker had set forth a process to “evaluate strategic alternatives” after “receiving multiple unsolicited proposals.”
On the same day,it emergedthat Cleveland-Cliffs, the only other integrated steelmaker in the country,was one such suitor, and thatUS Steel had rejecteda $7.8 billion cash and stock acquisition offer from its rival.
The tale should have ended whenJapan’s Nippon Steel emerged the victorin the ensuing bidding war, with an announcement on December 18, 2023, that Nippon would acquire the Pittsburgh-based steelmaker in an all-cash buy of $14.1 billion plus the assumption of $800 million in debt. This would have created one of the world’s largest steelmakers, producing 86 million tonnes per year; and with a goal of 100 million tpy.
But the only story with more twists than US Steel’s acquisition is the US presidential elections race. And the way things stand, it is unlikely the near $15 billion saga will find a resolution before the country elects its next president.
Currently, the deal faces the opposition of incumbent president Joe Biden, former president Donald Trump, politicians from both sides of the aisle, and most importantly, the influential United (USW) labor union, which hadthrown its weight behind Cleveland-Cliffsduring the bidding process.
“It has been a political roller coaster for the proposed acquisition,” Fastmarkets steel analyst Felix Bello said. “However, the synergies and financial fundamentals are still sound, and more so now that the proposal has been intensely scrutinized.”
Bello noted that in early May, a new closing date was announced for the proposed deal, “likely to lighten the political exposure and to let the idea simmer with those opposed.”
“That would be three months later than the original September date, but still in 2024,” Bello said, and listed his reasons for a positive outcome.
“It has a chance for a few reasons: new presidential and vice president Democratic candidates that will likely focus on positive scenarios after the acquisition,” Bello said, referring to thelast-minute replacement in the lineup for the 2024 presidential electionafter Biden dropped out of the presidential race on July 21 and endorsed current vice president Kamala Harris as the new nominee of the Democratic Party.
Since then, Harris’s choice of Minnesota governor Tim Walz as her running mate was endorsed by the USW.
“Vice president Harris couldn’t have chosen a stronger champion of workers to be her running mate, and the USW applauds her decision,” USW International president David McCall said on August 6, the same day Walz was certified as the Democratic Party’s vice-president nominee.
Bello also drew attention toCleveland-Cliffs snapping up Canadian steelmaker Stelcofor $2.5 billion, the cash and stock transaction announced on July 15, as one of the factors favoring the closing of the Nippon-US Steel deal.
“Cleveland Cliffs committed to acquire Canada’s Stelco last month for $2.5 billion, within its budget and capturing synergies that contribute to further rationalizing and restructuring the industry in North America,” Bello said.
The most important factor supporting the Nippon deal, is that “at stake is the future competitiveness of downstream industries going head-to-head against the best the world has to offer, and to head that Nippon Steel is the best suitor US Steel has,” Bello said.
“Nippon Steel’s $14.9 billion all-cash offer is by far a better offer than that of Cleveland Cliff’s $7.8 billion,” Bello said.
“In addition to the all-cash offer,Nippon will also invest $1.4 billion and honor the USW agreement currently in place,” Bello said, referring to the announcement the Japanese company made in its second-quarter earnings on August 1 that it will invest an additional $1.4 billion in capital expenditures into facilities covered by the current basic labor agreement with the USW, above the existing commitment of $1 billion, and bringing the total capex to $2.4 billion.
“It goes without saying that a Nippon Steel acquisition will also include technology transfer and more competitive access to the most profitable markets,” Bello said.
“It is also difficult on a political/national security basis to make a case against the transaction,” Bello added, addressingthe line of criticism taken by some politiciansagainst the deal.
“Japan is staunch ally of the US, both politically and economically and physically, in the US and in Japan – just look at a roster and magnitude of domestic automakers,” Bello said.
Other market pundits hold less optimistic views, among them Samir Kapadia, principal and chief operating officer at the Vogel Group, a bipartisan government affairs and consulting firm based in Washington DC.
“I think there’s a near zero chance that the deal gets done this year,” Kapadia told Fastmarkets.
“Nippon Steel grossly miscalculated the domestic politics around the transaction and have hit a complete reset button to recalibrate their position,” Kapadia said. “It would make no sense to push it forward this year, prior to the presidential election.”
“Even if we see a change in power in the White House, this deal is fraught with major challenges,” Kapadia added.
The timeline
The news breaks in August 2023
Market participants were abuzz on August 14, 2023, the day after the news broke that Cleveland-Cliffs was trying to acquire US Steel, and that the latter had rejected its offer because “US Steel was unable to properly evaluate the proposal because Cleveland-Cliffs refused to engage in the necessary and customary process to assess valuation and certainty unless US Steel agreed to the economic terms of the proposal in advance.”
One of the dominant views expressed by steel market sources was thatspot prices would go upif the two integrated producers were to combine.
The impact would befelt most keenly in the automotive sector, the sources said, noting that Cleveland-Cliffs and US Steel may represent as much as 80% of the market for automotive steel.
Also, the consolidation of the two integrated producers would give the combined entity a 100% monopoly in the non-grain oriented electrical steel (NOES) market.
USW throws its weight behind Cliffs bid
The United Steelworkers union (USW) told US Steel on August 17, 2023, that it has transferred to Cleveland-Cliffs its “right to bid” provisions.
Before that, the USW had affirmed in a letter on August 3 – that was later shared by Cleveland-Cliffs –that it supported the proposed acquisition, would not exercise its right of a counteroffer and would not endorse anyone other than Cleveland-Cliffs for such a transaction.
In response to that, Pennsylvania-based industrial conglomerate Esmark – whichhad placed an $7.8-billion all-cash bid for US Steelon August 14 – said on August 23 it waswithdrawing from the processto “respect” the USW support for a Cleveland-Cliff’s acquisition.
There were also anonymous reports on August 16 that Luxembourg-basedArcelorMittal SA was considering a bid for US Steel.
Increasing acrimony between US Steel and Cleveland-Cliffs; auto group opposes Cliffs bid
August remained a busy news month, with almost daily developments emerging from the very public pursuit of US Steel by its Cleveland, Ohio-based rival.
US Steel published a letter on August 22 noting that its existing basic labor agreement “does not grant the USW, or any party it assigns its rights to, the right to prevent a potential transaction – with any party – that our board decides is in the best interest of our stockholders.”
This was disclosed byUS Steel in a filing with the US Securities and Exchange Commission(SEC) on August 22.
On the same day,Cleveland-Cliffs demanded that US Steel reveal its potential buyers, in a filing with the SEC.
In response, US Steel said on August 29 it has entered into confidentiality agreements with “numerous third parties” and is “starting to share” due diligence information under those pacts,the company said in a filing with the SEC, but declined to disclose the name of those bidders.
In fact, the full process of the sale would not become public till much later,in an SEC filing that US Steel made on January 24. It revealed that Cleveland-Cliffs was one of the five entities that sent US Steel an indication of interest during its strategic alternatives review process.
The concerns surrounding an outsized impact of Cliffs acquiring US Steel waslaid bare in a letter filed on October 31by an automotive industry group, citing increased costs.
The Alliance for Automotive Innovation addressed US antitrust lawmakers in the letter, stating that: “If permitted to proceed, this transaction could have negative implications for the auto industry and increase costs for average drivers.”
Nippon Steel emerges the winner of a “historic deal”
US Steelexecuted a merger agreement with Japan’s Nippon Steelon December 18, with Nippon agreeing to pay $55 per share for the steelmaker – a 40% premium on the closing price for US Steel shares on December 15.
The pro forma company will be the third-largest global steelmaker, with a combined production capacity of 86 million tpy, including 15 million-16 million tpy in the United States.
David Burritt, US Steel’s chief executive officer, and Takahiro Mori, Nippon Steel’s executive vice president,said during a conference callon December 18 that, under Japanese ownership, US Steel’s brand name and assets would remain protected, while the company would benefit from Nippon Steel’s technological expertise, especially in the automotive and electrical steel segments.
After Cleveland-Cliffs, US Steel is the second steelmaker in the United States to produce non-oriented electrical steel, which is aimed at the electric-vehicle industry.
Lourenco Goncalves, chairman, president and CEO of Cleveland-Cliffs,congratulated US Steel on the newson December 18, while the USW slammed the announcement, saying it was caught unawares in a statement released the same day.
Political backlash
US senators and representatives from both sides of the aisleopposed the deal almost immediately, citing concerns around the national security implications of selling a US manufacturer for the defense and infrastructure industries to a foreign entity.
A letter written on December 19 by three lawmakers from US Steel’s home state of Pennsylvania begged Treasury Secretary Janet Yellen to block the deal.
The Biden administration pledged “serious scrutiny” of the tentative deal in a statement released on December 21 by National Economic Advisor Lael Brainard.
US Steel said in a statement sent to Fastmarkets that it notified the Biden administration on the day the acquisition was announced that it would voluntarily file for review.
The pushback came from former president Trump as well, who said on January 31he would block Nippon Steel’s deal to buy US Steel“instantaneously” if he wins the November election.
Following this,President Biden cemented his opposition to the dealas well, stating on March 14 it was “vital for it [US Steel] to remain an American steel company that is domestically owned and operated.”
The USW labor union welcomed the president’s statement. “We’re grateful for his unfailing support and his ongoing commitment to advancing the interests of working families and their communities,” David McCall, international president of the USW, said on March 14.
“Allowing one of our nation’s largest steel manufacturers to be purchased by a foreign-owned corporation leaves us vulnerable when it comes to meeting both our defense and critical infrastructure needs,” McCall said.
Realizing the uphill battle it is facing, Nippon Steelretained a team of nearly a dozen lobbyistsfrom Akin Gump Strauss Hauer & Feld – including two former members of Congress.
Nippon Steel president Eiji Hashimoto and executive vice president Takahiro Mori stated their commitment to preserving American jobs and investing in US Steel’s blast furnacesin an op-ed published in The Wall Street Journalon January 22.
Additionally, Nippon Steel said on March 15 that its acquisition of US Steel wouldboost American supply chains and economic defensesagainst China.
“Through increased financial investment and the contribution of our advanced technologies to US Steel, Nippon Steel will advance American priorities by driving greater quality and competitiveness for customers in the critical industries that rely on American steel while strengthening American supply chains and economic defenses against China,” Nippon Steel said. “No other US steel company on its own can meet this challenge while also meeting antitrust requirements.”
USW signs NDA with Nippon, USS shareholders vote in favor of deal
The USW’s vocal opposition emerged as a major hurdle for the deal completion, with the labor union noting on January 29 that Nippon Steel Corporation (NSC) will transfer its obligations to a holding company called Nippon Steel North America (NSNA).
“This means that NSC would not assume our labor, pension, retiree insurance and other agreements itself. Instead NSNA would acquire the business and take responsibility for our contracts,”the USW said on January 29.
However, theUSW union has signed a non-disclosure agreement (NDA) with Nippon Steel, the union told Fastmarkets on February 26, adding that the NDA was a not crucial development in their negotiations.
The USW said on March 7 that ameeting with Nippon Steel “yielded no progress”and that the company has still not earned the union’s trust.
Despite continued opposition from the USW, pending antitrust and national security regulatory reviews, and widespread political backlash,US Steel shareholders overwhelmingly voted in favorof Nippon Steel Corp’s $14.1 billion takeover offer on April 12.
Goncalves gloats as deal faces opposition, US Steel board claps back
The top executive of US Steel’s former suitor Cleveland Cliffs fired several missives at the proposed deal over April and May.
“It still baffles me to this day that… individuals representing Nippon Steel… felt that they could do this without union support,” Lourenco Goncalves said in hiscompany’s earnings callon April 23. “You just cannot do it without a USW-represented workforce.”
After this, Goncalves alsosaid that Nippon Steel’s pursuit of US Steel has “zero chance”of winning government approval. Goncalves made these comments at a press conference at the American Iron and Steel Institute (AISI) general meeting in Washington on May 14.
The USW rejected fresh assurances that Nippon Steel sent in a letter on May 17 to abide by the terms of the current labor contract with US Steel, a movethe union called a “backward step.”
The assurances did not address the union’s concern that agreements are being made with Nippon Steel USA, not with Nippon Steel in Japan, and therefore would not be legally binding on the parent company, the labor union said.
US Steel’s board of directors released a letteron May 21 to “correct the record.”
“We have found ourselves in the midst of a long-running misinformation campaign targeting our company, our investors, our employees and our business partners. For that reason, we must correct the record,” the letter said.
“While Cleveland-Cliffs is pushing false rumors to influence the market into believing we are working to unwind the transaction, nothing could be further from the truth,” the board said in the letter.
Goncalves responded to the letter on the same day,characterizing the Nippon-US Steel acquisition as an “uncloseable deal.”
“At Cleveland-Cliffs, we only deal with transparency,” Goncalves said on May 21. “It is unfortunate that the US Steel Board of Directors is just now realizing that it announced an un-closeable deal and is trying to blame Cliffs for its terrible decision-making.”
Department of Justice antitrust review
Nippon Steel said on May 2 it ispushing back its acquisition of US Steel to the second half of 2024– compared with earlier estimates it would close in the second or third quarter – following a request for additional information and documents from the US Department of Justice (DOJ). The request is in connection with the DOJ’s review of the acquisition.
“Following receipt of the second request and following careful deliberation with respect to the regulatory processes, Nippon Steel revises the estimated date of closing of the transaction,” Nippon Steel said.
On the same day, US Steel said it iscontinuing to make “progress” toward clearing regulatory scrutinyfrom the DOJ in its heightened antitrust review of Nippon Steel’s bid to acquire the 123-year-old company.
However, it was announced on May 30 that US Steel and Japan’s Nippon Steel havereceived all regulatory approvalsoutside the United States for the proposed acquisition of the legacy American steelmaker.
“Steel mined, melted and made in the USA, baby… Red White and Blue!”
David Burritt, president and chief executive officer of US Steeldefended the proposed dealat an industry event in June, tackling each of the points raised by detractors.
“It is steel mined, melted and made in the USA, baby… Red White and Blue!” Burritt told delegates at the Global Steel Dynamics Forum in New York City on June 18, noting that “in our future events, we will say the Pledge of Allegiance and sing the Star-Spangled Banner – we did it with Nippon Steel recently.”
Additionally,conservative thinktanks came out in defense of the proposed deal, with the Committee to Unleash Prosperity noting in a July thought piece the widespread opposition to the deal is unwarranted.
The Heritage Foundation noted in a similar thought-piece in April that US Steel is not the prize it once was, and that blocking the deal is denying it a chance to return to greatness.
“…Once a crown jewel of American industry, US Steel in recent decades has shuttered factories, sold others, and exited segments of the industry,” the foundation wrote. “Today’s market cap of just $9.42 billion is less than 1/100th of its size in 1901 as a proportion of the overall economy. US Steel is now the 648th largest American company, a stark contrast to seventh – where it would be had it maintained its size relative to GDP since 1901.”
Nippon promises additional $1.4 billion in capex, USW remains unmoved
Nippon Steel said it will invest an additional $1.4 billion in capital expendituresinto facilities covered by the current basic labor agreement (BLA) with the USW, above the existing commitment of $1 billion.
The facilities to receive the additional investment through 2026 include Gary Works, Mon Valley, Granite City, Nippon Steel said on August 1.
On the same day US Steel said in its second-quarter earnings presentation that Nippon Steel North America’s headquarters will relocate to Pittsburgh from its existing US headquarters in Houston, Texas.
These assurances seemingly fell on deaf ears as the USW lambasted the two companies as continuing “their high-priced public relations campaign as they seek to sell out domestic workers, retirees and communities.”
In apress statementreleased on Monday August 12, the USW said that “Nippon still has not provided any true guarantees that our jobs, wages or benefits will be protected beyond the expiration of our current agreements in 2026, and our national security and critical supply chains remain vulnerable under the terms of the current deal.”
In an accompanying video, USW international president David McCall said on Monday that “our collective bargaining agreement says that any company that’s going to purchase our plants, or the company, has to be the ultimate parent that signs that contract.”
“Under this transaction, it’s not Nippon Steel that is signing the contract, it’s Nippon Steel North America, a subsidiary,” McCall said. “And the way they have structured this deal, US Steel will be a subsidiary of Nippon Steel North America.”
US Steel and the USW have set a date of August 15 to arbitrate grievances the union filed in January.
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