The Biden administration’s move on Friday to block Nippon Steel’s proposed purchase of U.S. Steel raises questions about the once iconic American company’s future, with industry sources saying the manufacturer could struggle to energize growth or attract rival acquisition bids.
Biden stopped the $15 billion proposal over national security and supply chain concerns, but industry experts say that without the investment from Japan, the U.S-based steel manufacturer’s path forward is murky.
“With foreign ownership seemingly off the table, we see limited avenues moving forward,” Bill Peterson, metals and mining analyst for JPMorgan said in a research note.
U.S. Steel had warned that without an infusion of capital from Nippon Steel, it would be forced to curtail its legacy blast furnace investments and shift to cheaper nonunion electric arc furnaces. Additionally, it would move its headquarters out of Pittsburgh.
The company could entertain bids from domestic rivals, said Peterson, noting that U.S. Steel’s mini mill assets could be attractive to peers like steel products company Nucor Group, which considered buying parts of U.S. Steel before dropping out over price concerns.
Others say they don’t expect to see another company make an offer for U.S. Steel.
“No one was ready to follow Nippon Steel and Cliffs above USD 50/share a year ago,” BNP Paribas analysts said in a research note. “Cliffs no longer has enough firepower while foreign interested parties are now likely to stay well put given the backlash Nippon Steel had to face.”
Should U.S. Steel choose continue to operate as an independent company, it could then focus on growing its Big River steel plant in Arkansas, which it acquired in 2021, and which produces 70%-80% less emissions than typical steel-making processes, according to JPMorgan analysts. In that scenario, the company could simultaneously trim its legacy blast furnace assets over time, they said.
Challenges to come from both sides
Though doing so would present an uphill battle, both companies are expected to challenge the Biden Administration’s ruling.
“The President’s statement and Order do not present any credible evidence of a national security issue, making clear that this was a political decision,” the companies said in a joint statement Friday. “Following President Biden’s decision, we are left with no choice but to take all appropriate action to protect our legal rights.”
The companies added that the transaction would “revitalize communities” that rely on the steel industry, provide steelworkers with job security, and improve the American steel supply chain. In particular, Nippon had committed to investing in Mon Valley Works and Gary Works — two imperiled U.S. Steel plants — as part of the deal.
“Blocking this transaction means denying billions of committed investment to extend the life of U. S. Steel’s aging facilities and putting thousands of good-paying, family-sustaining union jobs at risk,” the companies said in the statement.
Meanwhile, United Steelworkers, the union representing 850,000 workers, cheered the administration’s move.
“It’s clear from U.S. Steel’s recent financial performance that it can easily remain a strong and resilient company. We now call on U.S. Steel’s board of directors to take the necessary steps to allow it to further flourish and remain profitable,” the union said in a statement.
Anticompetitive concerns
Even if another domestic rival like Nucor Corporation or Cleveland-Cliffs were to be interested in acquiring some or all of U.S. Steel, anticompetitive concerns could quash those aspirations.
“I think they have federal trade commission issues in terms of monopolistic practices when it comes to companies merging,” said corporate adviser Jay McDonald.
Jeremy Flack, CEO of Flack Global Metal Supply, a midsize metal supplier and a U.S. Steel client, echoed that concern.
“One nice thing about the Nippon deal was we had a new entrant to the market buying assets, as opposed to continued consolidation in which you eventually get an oligopoly if the steel mills here continue to buy each other up,” he told CBS MoneyWatch.
Could this spell the end of U.S. Steel?
If U.S. Steel can’t turn around facilities it says are currently unprofitable, it may have to close them, Flack said, adding that “Blocking this deal doesn’t serve anyone — customers, shareholders, workers or national security.”
For now, the only way to describe the American manufacturer’s future is “uncertain,” said Flack. “It will be challenged in court and we have a new administration coming in, so story is not written yet,” he added.
However, President-elect Donald Trump in December voiced his opposition to the proposed takeover deal in a social media post.
“I am totally against the once great and powerful U.S. Steel being bought by a foreign company, in this case Nippon Steel of Japan,” Trump wrote on Truth Social.
U.S. Steel Corporation reported third quarter 2024 net earnings of $119 million, down from earnings of $299 million for the third quarter of 2023, according to recent filings. The company’s revenues peaked in 2008 at $23.7 billion, and shrunk to around $18 billion in 2018.
The company is ranked 27th in the world based on output, and Nippon Steel ranks fourth, according to the World Steel Association.
contributed to this report.
