Companies signal court fight ahead after Biden blocks U.S. Steel sale

President Joe Biden’s decision Friday to block the sale of U.S. Steel to a Japanese rival has ignited an imminent legal challenge, alarmed foreign investors and cast a shadow over the careers of several thousand American steelworkers the White House says it wants to help.

Biden’s rejection of the deal came in a presidential order posted on the White House website, declaring Nippon Steel’s $14.9 billion bid for the U.S. steelmaker “prohibited.” The president acted to safeguard the domestic steel industry, which he believed was in danger of being swamped by excess foreign production by nations such as China, according to Robyn Patterson, a White House spokeswoman.

“This acquisition would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains,” Biden said.

When announced in December 2023, the trans-Pacific marriage was billed as a way to create a plus-sized steelmaker that could compete on the global stage with the largest Chinese companies.

The president’s decision, at least for now, leaves in ruins the corporate strategies of two giants: Nippon Steel, the world’s fourth-largest steel producer, and U.S. Steel, whose products shaped the nation’s buildings, bridges, autos and appliances.

In the near term, the companies plan a legal offensive they expect will demonstrate that the government’s review was distorted by the president’s political needs. As he faced a tough reelection fight, Biden sided with David McCall, the president of the United Steelworkers union, who opposed the deal from the start and provided the president campaign help in several key states.

If the courtroom fight fails, however, both companies will face difficult choices about the path ahead.

U.S. Steel has been deemphasizing its traditional unionized steelmaking operations in Pennsylvania’s Mon Valley south of Pittsburgh in favor of more environmentally-friendly, nonunion furnaces in Arkansas.

Nippon Steel had promised to spend $2.7 billion on U.S. Steel’s aging facilities, including $1 billion in the Mon Valley. One planned upgrade involved a piece of machinery called a “hot mill,” which shapes semifinished steel into sheets and bars, and dates to 1938.

McCall on Friday insisted that U.S. Steel has the financial heft to go it alone. But David Burritt, the company’s CEO, said last fall that U.S. Steel lacked the money to overhaul its antiquated furnaces.

“U.S. Steel for the last couple of years has been in a decline, from a financial health perspective,” said James Gellert, executive chair of RapidRatings, a supply chain risk analysis firm. “The Nippon Steel deal offered about as good a solution as they could have hoped for.”

U.S. Steel would be “hard-pressed” to execute a billion-dollar investment without raising fresh capital, Gellert said.

Indeed, U.S. Steel’s quarterly profits have been sliding for more than three years. The company had $1.8 billion in cash on its balance sheet as of the end of September and boasts untapped credit lines. But those funds can be put to more profitable uses elsewhere, financial analysts said.

“Investors would riot if Dave Burritt said ‘I’m going to spend $2 billion in the Mon Valley,’” said one analyst, who spoke on the condition of anonymity because he was not authorized to speak to the press.

Last fall, as Biden’s opposition to the deal hardened, Burritt warned that without the Japanese company’s deep pockets, an independent U.S. Steel would “largely pivot away from its blast furnace facilities, putting thousands of good-paying union jobs at risk.”

Among them are the workers in three plants spread across the traditional steelmaking center south of Pittsburgh, which employ roughly 4,000 workers, including 2,500 members of the United Steelworkers. In the wake of the president’s decision, emotions there were raw.

“I don’t think he fully understood the whole scope of the deal. He just sided with the USW president,” said Jason Zugai, vice president of USW Local 2227 in Clairton. “He definitely upset a lot of people in the Mon Valley today, people who need those jobs to support their families.”

U.S. Steel could look for another suitor. But the president’s rejection of a foreign purchaser limits the pool of potential buyers to a handful of American steelmakers, said Josh Spoores, a steel industry analyst for CRU Group in Pittsburgh. Whatever strategy emerges would involve cutbacks in the Mon Valley, perhaps soon, he said.

Lourenco Goncalves, CEO of Cleveland-Cliffs, who sought to acquire U.S. Steel in 2023, said in recent months that he remained interested.

Yet Goncalves’s cash stockpile is limited. And Cleveland-Cliffs faces a $1.3 billion price tag for an ambitious project in Middletown, Ohio.

As for Nippon Steel, it remains intent on expanding its footprint in the United States beyond the Weirton, West Virginia, plant it already operates. Some analysts said the company could invest in its own U.S. steel mill.

The Japanese company had wanted to buy U.S. Steel to benefit from the industrial revival spurred by Biden’s economic policies, including the bipartisan infrastructure law, that were driving steel demand higher. And U.S. tariffs made it more profitable to produce industrial metals here rather than import them from Japan.

Biden’s decision was applauded by national figures across the steel belt, including Sens. Sherrod Brown (D-Ohio) and John Fetterman (D-Pennsylvania). President-elect Donald Trump and Vice President-elect JD Vance both also opposed the sale of U.S. Steel.

But it drew brickbats, including from some Democrats in the Mon Valley, where U.S. Steel has produced steel since 1901. Despite the union leadership’s stance, support for the deal is widespread there.

“Blocking this deal will devastate our region and eliminate our legacy steel mills,” said Mayor Cletus Lee (D) of North Braddock, Pennsylvania.

Business groups in Washington likewise said the president’s decision raised questions about whether the United States remains receptive to investment from abroad.

Barring a Japanese company from completing a corporate acquisition sends “a powerful and negative signal to the rest of the world,” said Jonathan Samford, president of the Global Business Alliance.

Patterson, the White House spokeswoman, said the United States is open to foreign investment and that the president acted solely to protect national security.

Biden opted to kill the deal despite intense efforts in recent days by some of his senior advisers, who warned that rejecting a sizable investment from a top Japanese corporation could damage U.S. relations with Japan.

The president’s action comes after a Dec. 23 report by the interagency committee responsible for reviewing foreign investments in the United States for potential national security concerns. The Committee on Foreign Investment in the United States (CFIUS) said it was unable to reach a consensus on the risks of the Nippon Steel deal, leaving the final verdict with the White House.

In its final evaluation of the transaction, the committee warned that after buying U.S. Steel, Nippon Steel could reduce domestic steel output and pose “risks to the national security of the United States.” Among the industries hit hardest in that case would be the transportation and energy sectors, said the panel, chaired by Treasury Secretary Janet L. Yellen.

“Potential reduced output by U.S. Steel could lead to supply shortages and delays that could affect industries critical to national security,” the panel concluded.

CFIUS also said Nippon Steel’s global operations meant that it might not support future U.S. government trade actions against low-cost steel imports, leaving “the U.S. economy more exposed to dumping and unfair subsidization of steel.” The company instead could prioritize production in countries such as Brazil, Mexico and India.

The committee said officials were not convinced that Nippon Steel could mitigate those risks with its proposal to fill key U.S. Steel management jobs and a majority of the board of directors with U.S. citizens. Within the government, the Office of the U.S. Trade Representative was the leading opponent of the deal.

On Monday, Nippon Steel made a desperate bid to overcome Biden’s opposition, offering the government an effective veto over any reduction in U.S. Steel’s “production capacity.”

Yet even that gambit fell short.

The year-long controversy over the fate of the nation’s third-ranked steelmaker blended election-year politics, nostalgia for a vanished era of American industrial supremacy and contemporary concerns about global competition with China.

Biden had planned in September to block the deal. But after Democratic officials in Pennsylvania raised alarms about potential economic and political costs in that critical swing state, he agreed to postpone the decision until the presidential election.

The next step in the long-running controversy will likely occur in a federal courtroom.

Biden’s decision to block Nippon Steel’s proposed purchase of U.S. Steel was a political act made in “clear violation of due process and the law,” the two companies said Friday, signaling that a courtroom fight is imminent.

The government’s review of the deal “was deeply corrupted by politics and the outcome was predetermined, without an investigation on the merits, but to satisfy the political objectives of the Biden White House,” the two companies they said in a joint statement.

The steelmakers said they were “left with no choice but to take all appropriate action to protect our legal rights,” reiterating earlier warnings that they would go to court to challenge a presidential rejection.