U.S. Steel sale to Japanese company likely to proceed

Japan's largest steel company is planning to acquire the United States Steel Corp. (U.S. Steel).

On Dec. 18, U.S. Steel, the Pittsburgh-based producer that was the world's first billion-dollar corporation, agreed to be sold to Nippon Steel for $14.1 billion in cash.

Nippon Steel, the world's fourth-largest steel producer, will also take on all U.S. Steel debt, making the deal worth $14.9 billion in total.

The deal is dependent on regulatory and U.S. Steel shareholder approval.

David Yaskewich

"I think it's likely that it will go through, but it's not a done deal," said David Yaskewich, the Accounting, Economics and Finance chairman at Southeast Missouri State University.

Though Japan is an American ally, he said the Committee on Foreign Investment in the United States (CFIUS) could block the acquisition. Shareholders might also reject it.

"There's some concern that Nippon Steel will not continue or preserve the same collective bargaining agreements as U.S. Steel has agreed to in the past," he said. "Once the current labor contract expires, they might take a different direction or go towards more non-unionized employees. That's probably one of the largest fears right now, or one of the largest arguments criticizing this proposal."

In a prepared statement regarding the deal, Nippon president Eiji Hashimoto said the company planned to honor all existing union contracts.

Many American politicians from across the political spectrum have criticized the move as both potentially harmful to workers and to national security interests.

"It is an election year, after all, and it seems like the most vocal critics of this deal that are holding elected office are from states where there is more steel manufacturing, which coincidentally also happen to be swing states. I'm thinking Pennsylvania, Ohio, Indiana, and even Missouri," Yaskewich said.

Indeed, U.S. Sen. Josh Hawley of Missouri joined fellow Republican Sen. J.D. Vance of Ohio and Marco Rubio of Florida in penning a letter opposing the acquisition.

The letter, addressed to U.S. Secretary of the Treasury and Chairwoman of CFIUS Janet Yellen, urged her to reject the sale for reasons of national security.

"The Committee cannot rebalance American trade or reshape its corporate governance, but it can mitigate some of the worst consequences of both," the letter reads in part. "It can and should block the acquisition of U.S. Steel by (Nippon Steel), a company whose allegiances clearly lie with a foreign state and whose record in the United States is deeply flawed. We urge the Committee to initiate a review of the transaction unilaterally, particularly in light of the fact that U.S. Steel received competitive bids from American companies who would not pose the same risks."

In August, U.S. Steel rejected a $7.3 billion acquisition offer from Cleveland-based rival Cleveland-Cliffs Inc. Yaskewich said there was an overlap between car manufacturing products that the two companies create, which could have led to wide-scale market consolidation.

He said Nippon Steel produces more varied steel products than the two American companies.

"U.S. Steel is more upstream and raw production whereas you have more refined products that are produced in the U.S. by Nippon Steel," Yaskewich said.

Yaskewich also said Nippon Steel could provide the capital needed to remodel and expand production facilities, which could greatly benefit U.S. Steel. Some analysts, he added, predict an increased anticipation for steel products to use in infrastructure projects and electric vehicles.

"There is some belief that by having the resources, financial capital and technology from Nippon, a merged company or combined company would be better suited to have the production capacity to produce those steel products," he said.

Overall, Yaskewich said the deal was likely brought about by U.S. Steel not being the dominant company it once was. Formerly the world's largest corporation, it is now only the 24th-largest steel producer. Yaskewich said it needs to maintain its market share in an increasingly global steel market, hence the desire for an acquisition.

As to why Nippon Steel might have been interested in buying it, he suggested there is plenty of government protection for domestic steel producers in the U.S. through government contracts and import tariffs.

Nippon Steel, Yaskewich said, might be looking at production facilities within America to protect against such tariffs.

U.S. Steel would keep its name and headquarters if the deal goes through and will become a subsidiary of Nippon Steel.

Last year, U.S. Steel produced 14.5 million tons of steel.

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