The acquisition of Nippon Steel and US Steel initially sparked a glimmer of hope, but later dimmed.
On the 7th local time, the United Steelworkers of America (USW) agreed to meet with senior executives from Nippon Steel. However, the latest news shows that neither side has made any progress.
Previously, Nippon Steel's acquisition of USS for $14.9 billion in cash was strongly opposed by USW. US President Biden and former President Trump also hold opposing views on this merger and acquisition case. Biden previously expressed support for the U.S. Treasury Department's Foreign Investment Commission (CFIUS) to carefully review the transaction.
What is the remaining 10% chance of winning in Japan Steel's acquisition? Why are American politics and unions so opposed?
Gordon Johnson, founder and CEO of research company GLJ Research, told First Financial reporters that this acquisition can bring Nippon Steel closer to its target of producing 100 million tons of steel. It is believed that Nippon Steel will become the world's second-largest steel producer in terms of production capacity, while also significantly expanding its production in the United States.
Nippon Steel has not yet won the trust of USW
USS has a history of 123 years and was the world's first company with a valuation of over $1 billion. But in recent years, the company's steel production and stock market value have far lagged behind other American steel companies.
On December 18, 2023, the world's fourth largest steel manufacturer, Nippon Steel, announced an agreement with USS to acquire the company for $55 per share and $14.9 billion in cash.
However, this acquisition proposal has faced strong opposition from USW. USW Chairman David McCall stated that Amtrak's decision to sell products to foreign entities was greedy and short-sighted, and that USS did not contact USW before reaching a deal.
The turning point of the incident occurred at the end of February this year, when USW signed a confidentiality agreement with Nippon Steel. This means that both parties will engage in secret negotiations in order to reach an agreement that will enable USW to support the acquisition.
On March 4th, Takahiro Mori, Executive Vice President of Nippon Steel, announced that he would meet with McCall at some point this month.
It is reported that USS shareholders will vote in April on whether to accept the acquisition. Sen Xiaohong hopes to obtain USW support as soon as possible and is confident that the acquisition proposal can be implemented by the end of September.
However, the meeting between Nippon Steel and USW on March 7th yielded no results. USW stated in a statement that the meeting lasted less than an hour and Japan did not have USW guarantees to protect employment opportunities for American workers.
McCall said, "Nippon Steel has not yet won the trust of USW, and we still believe that the company has not fully understood its obligations to steel workers, retirees, and our community."
USW once stated that it only supports Cleveland Cliffs, the largest iron ore producer in the United States, in making a $7.25 billion acquisition offer to USS, but was rejected by the latter on the grounds of "unreasonable".
Johnson told reporters, "As far as I know, Cleveland Cliffs has agreed to all of USW's demands. I suspect USW is engaging in protectionism and lobbying behind the scenes, and would rather USS trade with Cliffs, this American company."
Political opposition
According to the terms of the transaction, Nippon Steel agreed to retain the name of American Steel Company and maintain its headquarters in Pittsburgh, promising to retain USS's production facilities and upgrade technology to improve production efficiency to a level similar to Japan. In addition, Nippon Steel has stated that it will comply with its agreement with USW and will not lay off employees or transfer existing jobs overseas.
However, the acquisition case still faces opposition from both parties in the United States, and this year coincides with the US presidential election, making the situation even more complex.
At the end of January 2024, Trump stated that if he wins the election, he will "immediately block" the deal and "hope to bring back employment opportunities to this country.".
Subsequently, McCall stated in a statement that USW received a "personal assurance" from Biden that he would support the steel workers.
Union voters are seen as one of the key groups determining the November US presidential election this year. Biden has repeatedly claimed to be the most pro union president in history, and Trump also met with the Truck Drivers Union on January 31st to gain the support of union members.
Johnson told First Financial reporters that this move indicates that politicians are showing goodwill to unions in Pennsylvania and Ohio, two election swing states.
On December 21, 2023, the Director of the National Economic Commission, Lair Brainard, stated in a statement that Biden believes domestic steel production is crucial to US national security, and the USS is a core component of it. Given the potential impact on national security and supply chain reliability, the acquisition of this iconic US company by foreign entities (even those from close allies) should be subject to strict scrutiny.
Why Japan Railways Actively Promotes
Despite facing numerous obstacles, Nippon Steel has been actively promoting this acquisition.
In February, Takahiro Mori stated that the domestic controversy in the United States was an "expected response" and that the acquisition process would proceed as planned. Nippon Steel seems very determined to pay a 40% premium and enter the US market through the acquisition of USS.
On November 15, 2021, Biden officially signed the Infrastructure Investment and Employment Act, promising to add approximately $550 billion in investment over the next five years, mainly for infrastructure construction such as roads and bridges, greatly increasing demand for steel and other building materials.
Subsequently, the White House Office of Management and Budget also issued a new policy guideline stating that infrastructure projects receiving federal financial assistance need to prioritize the use of American goods, covering three areas: steel, manufactured goods, and building materials.
In addition, high tariffs have been hindering Japanese steel companies from entering the US market. The Trump administration imposed a 25% tariff on global steel imports citing national security concerns. After Biden took office, he basically maintained this practice.
Johnson told First Financial reporters that Nippon Steel is facing the dilemma of stagnation and contraction in the domestic market in Japan, and is also feeling increasingly fierce competition in other areas. And the United States is one of the few markets that is expected to grow, but there is significant trade protection in the market. "This acquisition is indeed an opportunity for Nippon Steel," he said
Since 2020, steel prices in the United States have risen by over 70%. Panasonic and other Asian manufacturers building factories in the United States are facing the challenge of high costs. Even compared to other American manufacturers, the production cost of USS is extremely high. Nippon Steel President Hideyoshi Hashimoto and others stated in an article that the company plans to bring new technologies, improve efficiency, and reduce carbon emissions to American steel companies through "new investments and innovations".
Johnson analyzed this and said, "Some of the technologies owned by Nippon Steel can improve the level of steel production in the United States. However, overall, I don't think it will have a significant impact."