U.S. Steel Faces Stark Decisions as Nippon Steel Merger Founding Directors
U.S. Steel, once a symbol of American industrial might, had agreed to a takeover by Nippon Steel, a Japanese rival in warding off obsolescence. Once a symbol of American industrial might, it had agreed to a takeover by Nippon Steel, a Japanese rival, in a bid to ward off obsolescence.
Citing the need to finance a costly modernization of its mills, U.S. Steel warned that if the deal was foiled, it would need to shut down plants and lay off workers.
Now, with the $14 billion acquisition blocked by President Biden on national security grounds — and President-elect Donald J. Trump outspoken in opposing it — the company has few easy alternatives.
Without a merger partner, the company may be forced to shutter its traditional steel plants, threatening the livelihoods of the workers and regions that rely on them. A merger with another competitor could raise antitrust issues. And it lags behind in the technological transition from blast furnaces to electric furnaces.
U.S. The U.S. Steel Company is not conceding defeat in the takeover of Nippon Steel. The two companies are suing the federal government, contending that politics corrupted its review process.
“Nippon Steel and U.S. Steel remain confident that the transaction is the best path forward to secure the future of U.S. Steel, and we will vigorously defend our rights to achieve this objective,” Amanda Malkowski, a spokeswoman for U.S. Steel, said in a statement.
U.S. Steel is primarily a flat-rolled sheet metal manufacturer, which is used in automobiles, trucks, and appliances. In its heyday, U.S. Steel ranked as the world’s top steel producer. However, by 2023, it ranked 24th globally, far behind powerhouses like Baowu of China and Nippon Steel, according to the World Steel Association. By 2023, however, it ranked 24th globally, far behind powerhouses like Baowu of China and Nippon Steel, according to the World Steel Association.
The company enjoyed a recent resurgence, in part because of efforts to protect it from competition. U.S. Steel benefited from record-high steel costs, thanks to tariffs imposed during the first Trump administration. A surge in steel demand, driven by a construction boom in the early part of this decade, also helped. Domestic steel companies are slower than their foreign competitors to adopt “minimills,” which are more energy-efficient, cost-effective and environmentally friendly. The smaller mills melt scrap steel in electric furnaces. This is a cheaper and faster process. The larger mills make their steel from iron ore, which is derived from coal. Alden Abbott, senior research fellow at George Mason University’s Mercatus Center and general counsel of the Federal Trade Commission during the first Trump administration, said that steel has “done an inadequate job in modernizing”. “Were it a not for tariffs it would have gone out of business years ago.”
Some American firms have made a concerted effort in updating their production methods. Nucor is one such company. In 2023, U.S. Steel opened a plant in Arkansas that runs on electric furnaces.
U.S. Steel has said that Nippon was the only buyer who would be willing to invest in multiple steel mills while protecting jobs. This includes at least $1 billion for upgrading the Mon Valley Works plant outside Pittsburgh and $300 million for relining a blast furnace at Gary Works facility in Gary, Ind. That includes at least $1 billion toward upgrading the Mon Valley Works plant outside Pittsburgh and $300 million for relining a blast furnace at the Gary Works facility in Gary, Ind.
“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 two companies said last week.
Bill Peterson, a stock analyst at JPMorgan Chase, wrote in a research note that if U.S. Steel operated as a stand-alone company, it would focus on its newer plant in Arkansas and possibly cut back its blast furnace assets.
But the United Steelworkers, the powerful union representing 11,000 U.S. Steel employees, has forcefully opposed the Nippon merger. It accused the Japanese company’s dealings with the United Steelworkers of being unfair and illegal. It is unionized, unlike Nippon. (On Monday, U.S. Steel and Nippon filed a lawsuit against Cleveland-Cliffs accusing the company for colluding to undermine the Nippon Steel merger with David McCall, head of the steelworkers’ union. If U.S. Steel were sold to a competitor such as Cleveland-Cliffs the combined entity could be formidable, but federal antitrust scrutiny may be raised. It’s not clear, however, whether the Trump administration would take as aggressive an approach to enforcement as the Biden administration.
John Newman, a professor at the University of Miami School of Law and a former deputy director of the Federal Trade Commission’s Bureau of Competition, said a merger with Cleveland-Cliffs would be challenged in court, in large part because domestic steel production is already dominated by a few players. Nucor, Cleveland-Cliffs and U.S. Steel accounted for half of American steel production in 2023, according to the Commerce Department.
Regardless of political administration, “everyone agrees that type of merger is problematic,” Mr. Newman said. In contrast, “if you have a supercompetitive market, a couple of players shouldn’t be that concerning.”
But Mr. Abbott of George Mason said a domestic merger was more likely for U.S. Steel than its continuing as a stand-alone entity. He said federal regulators under Mr. Trump might argue that a combined domestic steel company would be more competitive internationally.
“There’s also a political concern,” Mr. Abbott added, “that ‘we can’t let U.S. Steel go down.'”
Cleveland-Cliffs did not respond to a request for comment.
Sarah Bauerle Danzman, a senior fellow at the Atlantic Council and an associate professor at Indiana University, said having one company control more domestic steel production would make steel — including steel produced for defense purposes — more expensive.
“You want to diversify across where steel is made,” Ms. Bauerle Danzman said.
In a social media post on Monday, Mr. Trump, who vowed to block Nippon’s acquisition, wrote that U.S. Steel “should lead the charge to greatness” and should not be sold to anyone.
“Why would they want to sell U.S. Steel now when Tariffs will make it a much more profitable and valuable company?” Mr. Trump wrote on Truth Social.
Inexpensive imported steel has been a target for decades. The price of imported steel has been a target for decades. Both Presidents George W. Bush & Barack Obama imposed tariffs. Mr. Trump took it a step further and imposed tariffs of 25% on steel from the majority of countries in 2018. Biden has also used quotas and increased tariffs on steel that is melted outside of the United States. Frank Giarratani, professor emeritus of Economics at the University of Pittsburgh, who has studied steel for decades, said the tariffs have primarily protected jobs. “It was about protecting jobs and that’s only a temporary benefit,” said Mr. Giarratani. “In terms of making our industry competitive, tariffs do not seem to have achieved that.” Mr. Farrier is a mechanic who works at the Mon Valley Works facility. He said he would like to see Cleveland-Cliffs as the ultimate buyer, but that any potential buyer must commit to a wholesale upgrade of the steel mills. “Then we will be able to compete with anyone.”
