Man of Steel

Today on TAP: President Biden’s blockage of the proposed purchase of U.S. Steel by Japan’s Nippon Steel is unprecedented and magnificently pro-union.

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You’d think it would be hard for Biden to top his full-on embrace of the UAW and their stunningly successful strike against the Big Three automakers. But Biden has just done it by declaring that he opposes the takeover by Japan’s Nippon Steel of U.S. Steel.

The U.S. needs to “maintain strong American steel companies powered by American steel workers,” Biden declared, adding: “U.S. Steel has been an iconic American steel company for more than a century, and it is vital for it to remain an American steel company that is domestically owned and operated.”

This move doubles down on Biden’s commitment to rebuild domestic industry and rejection of corporate-driven “free trade” and his alliance with the labor movement. There is a process for government evaluation of proposed foreign takeovers of American companies on national-security grounds. A review is conducted by an interagency Committee on Foreign Investment in the U.S. (CFIUS). The final decision whether to allow a deal to proceed is made by the president.

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CFIUS had begun a review of the Nippon-U.S. Steel takeover, but Biden short-circuited the process—not on the basis of narrowly defined military concerns but on industrial-policy and labor grounds. While both companies have mounted PR and lobbying campaigns to rescue their deal, Biden’s statement effectively kills it.

What if Japan complains to the (increasingly moribund) World Trade Organization? Well, Japan exports about two million cars to the U.S. annually but finds ways to limit U.S. auto exports to Japan to about 25,000. So bring it on.

Biden’s stunning move is entirely legitimate. For one thing, a leading Japanese steelmaker was buying an American producer against a background of steelmaking overcapacity worldwide and in Japan. So the deal might well lead to reduced U.S. steel production and jobs.

Also, U.S. Steel, especially under its current CEO David Burritt, has a dismal labor record. And there was an alternative suitor to Nippon, Cleveland-Cliffs (known as Cliffs), a company whose whole business strategy is based on close alliance with its union, the United Steelworkers.

Biden’s effective killing of the Nippon deal reopens the possibility of acquisition of U.S. Steel by Cliffs, in collaboration with the Steelworkers. Veterans of the four-decade struggle to revive a domestic, unionized steel industry told me they never thought they would live to see this day.

Biden’s rejection of the Nippon deal reflected weeks of campaigning by both the USW and Cliffs. The action had the support of his top advisers, but the impulse came personally from Biden.

In the proposed Nippon-U.S. Steel deal, there is also a grotesque personal conflict of interest on the part of CEO Burritt. U.S. Steel’s performance has been lackluster. Burritt is lousy at making steel. Before takeover bids began in 2023, U.S. Steel stock had been trading at around $22 a share. The Nippon buyout is valued at $55 a share. That translates to a windfall $70 million payday for Burritt in stock options, at the expense of the company and its workers.

Cliffs’ initial offer for U.S. Steel translated to about $40 a share, but in the bidding war with Nippon, Cliffs raised that to $54, just a dollar a share below Nippon’s winning bid. Since the effective collapse of the Nippon deal, Cliffs CEO Lourenco Goncalves has been cagey about what he might offer now. But his bid can’t go too low, since U.S. Steel has had other suitors, including ArcelorMittal, the world’s second-largest steelmaker.

Burritt, who is 69 and ready to retire, is said to be spitting mad that the combined efforts of Cliffs, the Steelworkers, and President Biden killed his payday. Burritt may well resist a sale to Cliffs out of sheer spite. But here is where good old shareholder capitalism comes to the rescue.

Informed observers expect that Cliffs’ eventual offer will be between $35 and $40 a share. U.S. Steel stock is currently trading at around $39, reflecting that view.

That’s a lot better than $22 a share—a handsome gain for shareholders. If Burritt refused to sell out of spite, he’d be open to all manner of shareholder suits. As a consolation prize, Burritt himself would walk away with at least $30 million, even at the reduced takeover price.

Of course, an acquisition of U.S. Steel by Cliffs would be a gain not just for shareholders but for stakeholders—union workers, their families and communities. It’s been a long time since we’ve seen this brand of capitalism.

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