US Steel (X, Financial) shares dropped 3% today after Vice President Harris voiced opposition to its pending acquisition by Nippon Steel. This follows US Steel's December 2023 agreement to be acquired by Japan's largest steelmaker.
- The $55 per share all-cash deal was highly attractive to US Steel investors, offering a 40% premium. It far exceeded Cleveland-Cliffs' (CLF, Financial) August 2023 offer of around $35 per share, which was a mix of cash and stock. US Steel's decision to hold out for a better deal seemed wise, but political hurdles were anticipated given the company's significance in a key election state.
- Opposition from Harris is not unexpected. President Biden vowed to block the deal in April, and former President Trump and his running mate JD Vance also opposed it. The acquisition faces strong resistance in Pennsylvania and from the United Steelworkers union, despite Nippon's promises to invest in facilities and avoid layoffs.
- The Department of Justice is currently conducting an antitrust review, and the Committee on Foreign Investment in the United States (CFIUS) is performing a national-security review. US Steel has not held an earnings call since the deal announcement but stated on August 1 that it is progressing through the regulatory processes, with a closing expected later this year.
- Last week, Nippon announced additional project investments at Mon Valley Works and Gary Works to enhance blast furnace productivity. These are in addition to previous investment promises of $1.4 billion, aimed at extending the production life of two of US Steel's key assets.
- Nippon appears to be addressing concerns about potential plant closures. The significant investment in upgrades suggests an intent to keep the facilities operational. Nippon expects the deal to close in the second half of 2024, pending US regulatory approvals.
The timing of this deal was always challenging, given the political climate. A foreign company acquiring a prominent US manufacturer in a swing state during an election year was bound to face scrutiny. The offer from CLF likely prompted Nippon to act swiftly. The deal's approval remains uncertain, with shares trading below the $55 offering price. A potential strategy might be securing regulatory approval after the election but before the inauguration, although the review process is supposed to be free from political influence.
