Nippon, US Steel sue over scuttled deal

Nippon Steel and US Steel filed a federal lawsuit on Monday challenging a Biden administration decision to block Nippon’s proposed US$15-billion acquisition of the Pittsburgh company and said that the head of the Steelworkers union and a rival steelmaker worked together to scuttle the buyout.

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”, although Japan, where Nippon is based, is a strong ally.

In separate lawsuits filed on Monday 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 on Monday.

Nippon Steel had promised to invest US$2.7 billion in US Steel’s ageing blast furnace operations in Gary, Indiana, and Pennsylvania’s Mon Valley, and had said it is best positioned to help the United States 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.

Biden on Friday halted the takeover after federal regulators deadlocked on whether to approve it – because “a strong domestically owned and operated steel industry represents an essential national security priority. ... Without domestic steel production and domestic steel workers, our nation is less strong and less secure,” he said in a statement.

While administration officials have said the decision was unrelated to Japan’s relationship with the US – this is the first time a US president has blocked a merger between a US and Japanese firm.

Biden departs the White House in two weeks.

The president’s decision arrived after the Committee on Foreign Investment in the United States, known as CFIUS, failed to reach consensus on possible national security risks last month.

Robyn Patterson, a White House spokesperson, said in a statement defending the president’s decision that “a committee of national security and trade experts determined this acquisition would create risk for American national security”.

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 US Steelworkers union, of “engaging in a coordinated series of anticompetitive and racketeering activities” to block the deal.

In 2023, before US Steel accepted the buyout offer from Nippon, Cleveland-Cliffs offered to buy US Steel for US$7 billion. US Steel turned down the offer and later accepted an all-cash offer from Nippon Steel, which Biden nixed on Friday.

The companies allege that Goncalves, in collusion with McCall, manoeuvred to prevent any party other than Cleveland-Cliffs from acquiring US Steel and to damage the Pittsburgh manufacturer’s ability to compete. McCall, on Monday, called the allegations baseless.

“By blocking Nippon Steel’s attempt to acquire US Steel, the Biden administration protected vital US interests, safeguarded our national security and helped preserve a domestic steel industry that underpins our country’s critical supply chains,” McCall said in a prepared statement.

McCall had long questioned Nippon Steel’s status as an honest broker for US national trade interests, and called Nippon Steel a “serial trade cheater” that had, for decades, undermined the domestic steel industry by dumping its products into US markets.

Cleveland-Cliffs, based in Ohio, did not immediately respond to a request by The Associated Press for comment.

Nippon and US Steel allege in the suit that CFIUS was instructed not to offer any counterproposals or hold discussions with them. The companies argued that the review process was manipulated so that the outcome would support a decision Biden had already made, saying he used “undue influence to advance his political agenda”.

Nippon, however, will face an incoming administration that has also vowed to block the acquisition.

AP