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https://www.nytimes.com/2024/08/26/business/nippon-steel-us-steel.html
When U.S. Steel put itself up for sale in 2023, executives at Nippon Steel
in Tokyo saw an opportunity: Buying the American steel maker could help it offset anemic demand in its home country and strengthen its hand in a
global business dominated by China.
On Dec. 18, the companies announced that Nippon Steel had agreed to
acquire U.S. Steel for $14.9 billion, a 40 percent premium to U.S. SteelÆs share price at the time. Analysts praised Nippon Steel as a potential
savior of U.S. Steel, a onetime backbone of the American economy that had fallen behind rivals.
But almost immediately, the merger incited a backlash in the United States
that has prevented it from being completed.
U.S. politicians from both parties have condemned the prospect that a
storied 123-year-old American industrial company would be acquired by a
foreign corporation. The timing was also particularly bad for Nippon
Steel: The United Steelworkers union, the group that most forcefully
opposed the deal, is based in Pennsylvania, a state that could determine
the winner of the presidential election in November.
Much of the furor surrounding the deal can be traced back to Nippon
SteelÆs decision not to consult union leaders while it negotiated with
U.S. Steel, according to interviews with some of the key players,
including two U.S. and Japanese officials who informally advised Nippon
Steel. Both spoke on the condition of anonymity because they were not authorized to speak publicly.
Nippon Steel also initially underestimated the challenges that United Steelworkers opposition would pose to closing the deal, especially in an election year, the two officials said.
Now, eight months later, Nippon Steel is locked in a standoff with a union
that represents some of the most politically powerful voters in the United States. The dealÆs fate will most likely fall to the next president, and
could have implications for not only the structure of the global steel
industry but also U.S.-Japanese economic relations.
Nippon Steel has hired lobbyists to amplify its arguments that the merger
would be good for both companies and their employees, as well as for the
United States and Japan. The United Steelworkers has taken action under
its labor contract to contest the acquisition in what experts say is an
effort to win concessions for workers.
ôIt would have been hard to expect how political this deal has become,ö
said Nick Wall, a Tokyo partner specializing in mergers and acquisitions
at the law firm A&O Shearman, which is not involved in the negotiations.
The presidential election, he said, ôis going to be won or lost in several
key states that just so happen to be at the very center of this deal.ö
An Awkward Phone Call
The day the merger was announced, said David McCall, the international president of the United Steelworkers, he received a phone call at 6 a.m.
from the chief executive of U.S. Steel, David Burritt, who
enthusiastically talked him through the details of the deal.
Mr. McCall was taken aback. Months earlier, another company that had bid
for U.S. Steel, the American steel producer Cleveland-Cliffs, had talked through its plans with union leaders and asked for their support. Now, Mr. McCall said, he was hearing of the involvement of a Japanese buyer for the first time.
ôI didnÆt know anything about Nippon or its plans,ö Mr. McCall said. ôIÆm
not going to say that it has never happened that I wasnÆt told in advance
about a deal, but not in this manner, not in this completely dismissive
kind of way.ö
The union immediately came out against the acquisition, which, it said, violated an agreement it had with U.S. Steel that promised to inform the
union in advance of any change in control of the company.
The union also said that a foreign corporationÆs purchase of an American
steel company would pose threats to national security and that it had identified holes in commitments that Nippon Steel had offered it.
From there, as described by one of the government officials advising on
the deal, politicians in the United States began to voice concerns. In
January, the month after the merger was announced, former President Donald
J. Trump, then already a leading Republican candidate for president, said
he would block the deal if elected.
President Biden, who had portrayed himself as the ômost pro-union
president in history,ö signaled his opposition to foreign ownership of
U.S. Steel in mid-March. About a week later, the United Steelworkers
endorsed Mr. BidenÆs bid for re-election.
A powerful interagency panel, the Committee on Foreign Investment in the
United States, began reviewing the national security implications of
Nippon SteelÆs plans. From the start, one complication to the deal was the earlier buyout offer by Cleveland-Cliffs, which had been backed by the
union but rejected by U.S. Steel.
Two people familiar with Nippon Steel managementÆs thinking, who were not authorized to speak publicly, said Nippon Steel had been told that, given
the United SteelworkersÆ close relationship with Cleveland-Cliffs,
information about its bid could leak if the union had advance knowledge of Nippon SteelÆs offer.
A leak could have jeopardized the deal, said Mr. Wall, from A&O Shearman.
ôThat is an enormously difficult decision to make,ö he added.
In a statement, a spokeswoman for Nippon Steel said the company had been
unable to meet with the union before the deal was announced because of ôconstraintsö related to the auction process, without elaborating further.
A $15 Billion Game of Chicken
The intense and swift opposition that the deal engendered has left Nippon
Steel on the back foot.
In March, the company said it would invest an additional $1.4 billion in
U.S. SteelÆs facilities. It has sent Takahiro Mori, its executive in
charge of the deal, on several trips to the United States to build grass-
roots support, and it has withdrawn from a longstanding joint venture in
China that might have elicited suspicion from U.S. regulators.
Nippon Steel has ramped up public relations efforts and hired Mike Pompeo,
a secretary of state under Mr. Trump, as an adviser.
Part of Nippon SteelÆs message is that its alliance with U.S. Steel would create one of the industryÆs largest producers ù a force capable of taking
on China, which makes more than half the worldÆs steel.
If the United States wants to build a global economic model that
outperforms ChinaÆs, ôwe must embrace foreign direct investment from our partners and allies,ö Mr. Pompeo wrote this month in an opinion essay for
The Wall Street Journal.
Nippon Steel executives and advisers on the deal are betting that
discussions will progress after the presidential election.
Last week, Mr. Trump reiterated that he would block Nippon SteelÆs
acquisition if he became president. Vice President Kamala Harris, now the Democratic presidential nominee, has not publicly commented on it.
On Aug. 15, the grievances that the United Steelworkers lodged against the
deal were heard by a panel of arbitrators in Philadelphia. The arbitration board will either say the deal can go through as it stands or recommend
that U.S. Steel and Nippon Steel make certain adjustments. The decision is
due by the end of September.
The union has contested the commitments it was offered by Nippon Steel. It points to a vow by Nippon Steel not to lay off any employees or close any plants. But the union said the pledge would remain valid only through the
end of the current labor contract and would be subject to exceptions for ôextraordinary circumstances.ö
The union has an interest in pushing hard for concessions at a place of
maximum strength before the election, said Jonathan Grady, the founding principal of the consultancy firm Canary Group, who has analyzed the deal
for investors.
On the other side, it is advantageous for Nippon Steel to try to play out
the clock and gain the upper hand, he added.
ôItÆs a complicated game being played between Nippon Steel and the local
steel union,ö Mr. Grady said. ôAlmost a year in, the Nippon Steel merger
deal has turned into something like a high-stakes, $15 billion game of chicken.ö
--
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