Nippon Steel and US Steel have filed a federal lawsuit in the United States challenging the Biden administration’s decision to block Nippon’s proposed $15bn acquisition of the Pittsburgh company. The companies say the head of the United Steelworkers union and a rival steelmaker worked together to scuttle the buyout.
The lawsuit, filed on Monday, alleges US President Joe Biden prejudiced the decision of the Committee on Foreign Investment in the US (CFIUS) which scrutinises foreign investments for national security risks, and violated the companies’ right to a fair review.
In moving to block the transaction on Friday, Biden said US companies producing a large amount of steel need to “keep leading the fight on behalf of America’s national interests”, though Japan, where Nippon is based, is a strong ally. This is the first time a US president has blocked a merger between a US and Japanese firm.
In separate lawsuits filed in the US Court of Appeals for the District of Columbia and the US District Court for the Western District of Pennsylvania, the steelmakers allege that it was a political decision made by the Biden administration that had no rational legal basis.
“Nippon Steel and US Steel have engaged in good faith with all parties to underscore how the Transaction will enhance, not threaten, United States national security,” the companies said in a prepared statement Monday.
Nippon Steel had promised to invest $2.7bn in US Steel’s aging blast furnace operations in Gary, Indiana, and Pennsylvania’s Mon Valley, and had said it is best positioned to help the US compete in an industry dominated by the Chinese.
US Steel has warned that, without Nippon Steel’s cash, it will shift production away from the blast furnaces to cheaper non-union electric arc furnaces and move its headquarters out of Pittsburgh.
In a separate lawsuit filed in the District Court for the Western District of Pennsylvania, the companies accused steel-making rival Cleveland-Cliffs Inc and its CEO, Lourenco Goncalves, in coordination with David McCall, the head of the United Steelworkers (USW) union, of “engaging in a coordinated series of anticompetitive and racketeering activities” to block the deal. McCall on Monday called the allegations baseless.
In 2023, before US Steel accepted the buyout offer from Nippon, Cleveland-Cliffs offered to buy US Steel for $7bn. US Steel turned down the offer and later accepted an all-cash offer from Nippon Steel which has now been nixed.
Politicised merger
The merger had become highly politicised ahead of the November US presidential election, with both Democrat Biden and Republican President-elect Donald Trump pledging to kill it as they wooed voters in the swing state of Pennsylvania, where US Steel is headquartered. USW President McCall opposed the tie-up.
Trump and Biden both asserted the company should remain American-owned even after the Japanese firm offered to move its US headquarters to Pittsburgh, where the US steelmaker is based, and promised to honour all agreements in place between US Steel and the USW.
Biden sought to kill the deal to “curry favor with the USW leadership in Pennsylvania in his bid for reelection”, the companies allege.
“As a result of President Biden’s undue influence to advance his political agenda, the Committee on Foreign Investment in the United States failed to conduct a good faith, national security-focused regulatory review process,” the companies said in a statement announcing the litigation.
A White House spokesperson said “A committee of national security and trade experts determined this acquisition would create risk for American national security. President Biden will never hesitate to protect the security of this nation, its infrastructure, and the resilience of its supply chains.”
The prospects are unclear for the lawsuit, which also targets Attorney General Merrick Garland and Treasury Secretary Janet Yellen, who oversees CFIUS. Courts generally give great deference to CFIUS to define national security, experts say.
The US Department of Justice declined to comment, and the Treasury Department did not respond to a request for comment from Reuters news agency.
Trump, in a post on his social media platform, asked “Why would they want to sell US Steel now when Tariffs will make it a much more profitable and valuable company?”
Trump has promised to impose tariffs on imports across the board.
US Steel, founded in 1901 by some of the biggest US magnates, including Andrew Carnegie, JP Morgan and Charles Schwab, became intertwined with the nation’s industrial recovery following the Great Depression and World War II.
The company has been under pressure following several quarters of falling revenue and profit, making it an attractive takeover target for rivals looking to expand their US market share.
‘Manipulated’ review
Nippon Steel’s December 2023 bid for US Steel faced headwinds from the start.
Biden came out against the deal on March 14, before the CFIUS review had even begun, prejudging the outcome and depriving the companies of due process, guaranteed by both the Constitution and CFIUS regulations, the companies said.
McCall endorsed Biden a week later. Biden was later replaced on the ticket by Vice President Kamala Harris, who also opposed the deal and was endorsed by the USW.
Following a review, CFIUS normally approves a deal, or recommends the president block it. In rare cases, when the agencies that make up CFIUS cannot agree, they can refer the matter to the president, as they did with the Nippon Steel deal on December 23, setting the stage for Biden’s block.
Before that, CFIUS staff were barred from negotiating with the companies on a proposed agreement to address the committee’s national security concerns, the statement alleges, a marked deviation from normal practice.
“It is clear that the review process was being manipulated so that its outcome would support President Biden’s predetermined decision,” the companies said. “That cannot be, and is not, the due process to which parties before CFIUS are entitled.”
