Japanese Minister Comments on U.S. Steel Takeover

By Katya Golubkova and Makiko Yamazaki

TOKYO (Reuters) – Governments should not intervene in deals arbitrarily, said Taro Kono, Japanese minister and prime ministerial candidate, when discussing the U.S. preparation to block Nippon Steel’s acquisition of U.S. Steel.

Sources informed Reuters that the White House is likely to announce blocking Nippon Steel’s $15 billion bid for U.S. Steel citing national security concerns.

The acquisition faces bipartisan political opposition in the U.S., particularly against the backdrop of upcoming presidential elections, with a significant labor union against the takeover of U.S. Steel, which is based in Pennsylvania, a critical state for both Democrats and Republicans.

Kono stated, “There are times when the free market is outweighed by national security, environment and labor rights issues, but I am not sure if the acquisition of U.S. Steel is comparable to that.” He emphasized that buyouts can benefit companies and regions. The ruling Liberal Democratic Party (LDP) has parliamentary control, meaning its leader typically becomes the prime minister.

He expressed concern that electoral politics may distort the market, saying, “Perhaps it is the presidential election and everyone wants the labor union vote, but I would hope that the market will not be distorted by such a situation.”

As both Nippon Steel and U.S. Steel aim to close the deal by the end of the year, this situation is sensitive given the close relationship between the U.S. and Japan, with Japan being the largest foreign investor in the U.S.

U.S. Ambassador to Japan, Rahm Emanuel, asserted, “The U.S.-Japan relationship is deeper, richer, and stronger than any single commercial transaction.”

MARKET REACTION

Shares of Nippon Steel fell 0.4% in Tokyo, despite earlier gains, while the wider Nikkei index declined by 1%. U.S. Steel shares plunged 17.5% on Wednesday.

Additionally, the Committee on Foreign Investment in the U.S. (CFIUS) warned Nippon Steel in a letter that the deal could harm American steel production, affecting U.S. Steel’s willingness to pursue trade remedies.

The Japan-U.S. Business Council expressed serious concerns regarding the Biden administration potentially blocking the sale, emphasizing the importance of an objective review process.

Japanese megabanks planned to collectively lend Nippon Steel $16 billion for this acquisition. While the deal could benefit Nippon Steel in the long run, concerns about equity financing and stock dilution present short-term risks.

Nippon Steel aims for this acquisition partly to address challenges posed by cheap imports from China, which could raise its global crude steel capacity closer to 100 million metric tons per year. The company plans investments and job commitments to gain support from the United Steelworkers (USW) union, including relocating its U.S. headquarters to Pittsburgh.

The situation remains complex, with potential job losses looming from plant closures if the deal fails. Andrew Jackson from Ortus Advisors noted that this issue could resurface post-U.S. elections in November.

Nippon Steel and U.S. Steel have declined to comment on the CFIUS letter but stated their belief in the transaction’s safety from national security concerns, asserting that it would strengthen the U.S. steel industry.

Nippon Steel Vice Chairman Takahiro Mori plans to visit the U.S. this month for ongoing negotiations, though details remain undisclosed.

($1 = 143.6500 yen)