Nippon Steel Considers Suing US After Biden Blocks $15bn Deal

Japan’s Nippon Steel said on Monday it was open to suing the United States government over President Joe Biden’s decision to block its $14.9 billion takeover of US Steel.

Nippon Steel President Tadashi Imai said that filing a lawsuit against the US government was one of the “important options” before the company, according to a report by Japanese broadcaster Nippon Television.

Imai’s statement comes two days after Biden passed an order “prohibiting” the acquisition of US Steel, saying it “threatens to impair the national security of the United States.”

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Biden’s — and wider — opposition to the deal had been well-flagged and the order blocking the deal was widely expected.

But Imai told reporters that the US government’s reviewing process and the decisions over its acquisition proposal did not seem to have been properly handled.

Nippon Steel is “entitled to a proper review,” he said, adding that the company ‘will not take long’ to announce countermeasures to the US government’s decision.

Meanwhile, the steelmaker will find backing from the Japanese government on the issue. Industry minister Yoji Muto said on Monday that the Japanese government will consider concrete support measures for Nippon Steel based on the company’s response to the decision.

Prime Minister Shigeru Ishiba also hinted that Biden’s decision could result in investment flows from Japan to the US. Japan is the biggest investor into the US economy.

Ishiba said on Monday that he viewed Biden’s decision as a “grave matter” that had led to concerns among Japanese businesses over the future of bilateral investment.

“We will strongly request the US government to dash such concerns,” he said. “Although [the US] is an allied nation, for the future of our relations, we must insist on an explanation as to why there are security concerns.”

Officials said the Ishiba government had already conveyed its position on the matter to the Biden administration.

‘Shameful, corrupt, unlawful’ decision

Meanwhile, US Steel could potentially join Nippon Steel in suing the US government, with the company issuing scathing criticism of Biden’s order.

In a lengthy statement on Friday, the company called the block an ‘unlawful decision’ resulting from a process “manipulated to advance President Biden’s political agenda.”

“We are left with no choice but to take all appropriate action to protect our legal rights,” the company said.

Separately, US Steel CEO David Burritt said the company planned to fight Biden’s decision, which he termed “shameful and corrupt.” He added that Biden had insulted Japan and also refused to meet with the US company to learn its point of view.

“The Chinese Communist Party leaders in Beijing are dancing in the streets,” Burritt added.

But some lawyers and consultants have said a legal challenge to the block would be tough.

“Even if Nippon Steel is somehow able resuscitate the deal, it faces a similarly dire prognosis from Trump. He would probably move quickly to kill it,” David Boling, a director at consultants Eurasia Group, said.

President-elect Donald Trump had, on his campaign trail vowed to stop “the once great and powerful US Steel being bought by a foreign company.”

“Buyer Beware!!!” he had said in comments posted on his social media platform Truth Social.

What’s at stake for Nippon Steel, US Steel?

The proposed deal has not yet been terminated by the companies even after Biden blocked the purchase. But Nippon Steel will owe US Steel a $565 million break fee if it is not completed.

Aside from both companies suing the US government, the future course of the deal could involve another buyer swooping in for US Steel, or Republicans — who favour the deal — urging Trump to find a way to approve it.

In any case a lot will be at stake for both companies.

For Nippon steel, acquiring US Steel was key to a growth strategy that aimed to raise its global crude steel production capacity to 85 million metric tons per year from 65 million tons now. The company aims to lift production capacity to 100 million tons over the long-term.

Yoshihiko Tabei, chief strategist at Naito Securities, said achieving medium- to long-term growth will likely be challenging for Nippon Steel without expanding operations in the US.

Meanwhile, for US Steel, the block cuts off a critical lifeline of capital. The beleaguered American icon has reported nine consecutive quarters of falling profits amid a global downturn in the steel industry, and it is unclear whether another buyer will emerge.

The firm has previously said it would have to idle key mills without the nearly $3 billion in promised investment from the Japanese firm.

Not all bad for Nippon Steel

For investors in Nippon Steel, however, concerns around the future of the deal may not necessarily be bad news.

Shares in Nippon Steel fell only slightly on Monday — their first day of trade since Biden blocked the deal.

The company’s shares closed down 0.75% at 3,158 yen ($20.03), compared with a 1% fall in broader Topix index. They settled at 3,182 yen on December 30, the final trading day of 2024 on the Tokyo Stock Exchange, which was closed for the remainder of last week for the New Year holiday.

“Some investors may view the failure of the US Steel acquisition as alleviating financial concerns due to the substantial amount of money involved in the deal,” said Naito Securities’ Tabei.

Nippon Steel had not finalised a permanent financing plan for the all-cash deal but said raising equity was among the possibilities.

Some analysts think the failure of the deal could boost shares in Nippon Steel.

“Even if the deal does not proceed, Nippon Steel’s earnings outlook remains unchanged, with significant growth expected in the next financial year starting in April,” Yuji Matsumoto, an analyst at Nomura Securities said in a note.

“Additionally, the removal of financing uncertainty related to the acquisition is likely to support a near-term increase in the stock price,” he said.