Nippon Steel and US Steel Embrace--Again

Share prices of US Steel surged on the news that Japan’s Nippon Steel will at last acquire the company. Well, share values should rise. Without a deal, US Steel was staring bankruptcy on the face. Now shareholders will get some $14 billion from Nippon, far more than the company’s market capitalization and than any potential buyer has offered in the past. Nippon has also pledged assurances to make the deal attractive to US Steel employees and the federal government in Washington. 

As it stands, the deal nearing completion is much like the original deal that the Biden administration rejected in early January. The $14 billion purchase price was the same as the figure now on offer. Then, as seems to be the case now, Nippon has further pledged some $2.7 billion in new investment to modernize and expand US Steel production facilities. 

To quiet labor concerns, Nippon has promised to abide by all existing labor contracts and also promised that it would make no layoffs before 2026. The original deal also offered a $5,000 bonus to each US Steel employee. It is not clear that offer remains in place. 

As in the earlier deal, Nippon has answered concerns in Washington by promising an American majority on the board of the US Steel subsidiary, an American chief executive officer, and a supervisory role for Washington on any decision to cut back on steel production capacity.

President Trump, who during the 2024 presidential campaign opposed the Nippon acquisition, has now endorsed the deal and described it positively as an “investment in America.” And in a certain light, that is a fair way to describe the matter. Not only does the purchase price inject billions into U.S. financial markets and the economy, but the additional investments in modernization and expansion promises to turn an inefficient and unprofitable operation on the verge of bankruptcy into a formidable competitor. 

Such promise is in fact the main reason why Nippon made the offer in the first place. Building up the US Steel operation clearly gives Nippon secure access to a still attractive American market for steel. It also gets around any new tariffs Trump might put on imported steel. Not coincidently, the White House, almost simultaneously with approving the deal, announced a doubling of tariffs on imported steel to 50%. If this reasoning undeniably works to the benefit Nippon’s existing shareholders in Japan, it also saves American jobs and promises a more viable domestic U.S. steel production capacity.

Against this background, it is hard to understand why Joe Biden nixed the deal only a few months ago or why United Steel Workers of America (USW) President David McCall continues to oppose the acquisition. McCall may have hoped that his opposition could win a more extended no layoffs pledge from Nippon. Biden’s objection is harder to discern, especially since his own national security assessment team endorsed the acquisition. When he rejected the deal, he noted “foreign control” and “supply chain” considerations, both of which seem strange since Nippon planned to enhance domestic American-based steel production capacity and gave Washington considerable supervisory control on the board.

The big loser in these newly announced arrangements is US Steel competitor, Cleveland Cliffs.  Had US Steel gone bankrupt, Cleveland Cliffs could have bought the pieces it wanted at bargain prices and with those facilities it would have 100% of domestic steel blast furnace production, 100% of domestic steel used in electric vehicles, and between 65 and 90% of the domestic steel used in all vehicles. Now Cleveland Cliffs will face an upgraded competitor.

Meanwhile, the United States gets an enhanced capacity to produce steel, a production capability that if Nippon’s investments can bring US Steel’s profitability only halfway to what Nippon boasts in Japan, can avoid the pain of bankruptcy and compete globally without tariff protection of the sort just announced by the White House.