At a campaign event last month in Pennsylvania, the heart of US steel production, President Biden made it clear that he does not want the proposed takeover of US Steel by Japan’s Nippon Steel to go ahead.
“We are finally making sure that United States Steel remains United States Steel,” Biden said. “It won’t be someone else’s steel.”
How that promise will be fulfilled has yet to be determined. US Steel said in its first-quarter earnings release this week that it expected the acquisition to close in the second half of this year, but noted that the timing was dependent on receiving regulatory approval.
On Friday, Nippon Steel said it was delaying the timeline for closing the deal, from the middle of this year to the end of 2024, because it had been asked to provide more information about the transaction to the Justice Department, which is reviewing the case. the agreement.
The intensified scrutiny of the takeover has raised expectations that the $15 billion buyout could ultimately be scuttled by the Biden administration. It has also drawn attention to the secretive interagency panel that could be the final arbiter of the merger: the Committee on Foreign Investment in the United States.
With a presidential election six months away and opposition to the deal running strong among union members and some Senate Democrats, the opaque committee is under pressure to conclude that a deal involving a company belonging to a top U.S. ally threatens national security .
The commission, known as CFIUS, was created in the 1970s to screen international mergers and acquisitions for national security concerns. Over the years, the definition of national security has broadened, and in many cases the panel’s work has been consumed by political considerations, often with a focus on keeping Chinese investments out of America.
But scrutiny of Nippon’s bid for US Steel is different from recent transactions involving companies such as China’s ByteDance or Singapore’s Broadcom, which were blocked by President Donald J. Trump in 2018 from taking over US chipmaker Qualcomm.
Instead, it seems to be the 1980s again, when concerns about trade with Japan were running high.
In 1983, the threat of CFIUS intervention caused a new metals merger involving the same Nippon Steel Corporation to fall apart. At that time, Nippon wanted to acquire the specialty metals division of Pittsburgh-based Allegheny International. The US metals sector was struggling due to the slumping aerospace industry, one of its most important markets, and Nippon was interested in gaining a foothold and a factory in the United States.
However, the Reagan administration had other ideas and at the request of the Department of Defense, the transaction was reviewed by CFIUS. The Pentagon was concerned that the Allegheny unit’s technology would find its way to the Soviet Union, and classified the metal the American company produced as critical to national security based on the fact that it was used to build military aircraft. to make. Faced with this complication, Nippon reluctantly withdrew his offer.
“In 1983, there was a real bona fide concern about technology leakage to the former Soviet Union,” said Mario Mancuso, who heads the international trade and national security practice at the law firm Kirkland & Ellis.
Mr. Mancuso noted that the situation 40 years ago was significantly different from the current case because it was difficult to argue that Nippon Steel’s bid could somehow benefit an adversary like Russia or China.
“No one is saying that US Steel’s technology is going to China because US Steel and Nippon want to compete with China,” he said.
The investment review panel was created in 1975 by order of President Gerald R. Ford, amid concerns about investments that members of the Organization of the Petroleum Exporting Countries were making in U.S. portfolio assets, according to the Congressional Research Service.
The scope of CFIUS, which is headed by the Treasury Secretary and consists of officials from federal agencies, has broadened in scope in recent decades along with what the United States considers a threat to national security. Today, technologies such as semiconductors and quantum computers are considered matters of national security, a departure from the early days when concerns primarily stemmed from access to American innovations that could be used to build traditional military equipment such as tanks and aircraft.
Over the years, CFIUS’ powers and the types of transactions it can review have been expanded by Congress as political headwinds changed course or intensified.
After a political firestorm in 2006, after a Dubai state-owned company, DP World, wanted to manage some terminal operations at six U.S. ports, Congress intervened to stop the deal. It has also taken steps to impose greater transparency on CFIUS and ensure that it rigorously monitors international transactions.
In 2018, amid concerns about Chinese investments, Congress passed legislation giving the commission more time to investigate transactions and the authority to review land purchases near military installations.
According to the panel’s most recent report to Congress, CFIUS had reviewed more than 400 transactions by 2022 and halted 20 after the committee raised national security concerns that could not be addressed. For cases requiring a full investigation, the committee makes a recommendation to the president, who has the final say on whether a transaction should be blocked on national security grounds.
The takeover of US Steel will be particularly difficult because Japan is a close ally – Mr Biden hosted his prime minister, Fumio Kishida, for a formal state dinner last month.
However, the Biden administration has made supply chain resilience a priority since the pandemic, when shortages of products such as semiconductors exposed America’s reliance on foreign sources for critical materials. The committee could argue that there are national security concerns associated with an eventual loss of U.S. control over domestic steel supplies. The committee could also try to require Nippon to agree to safeguards that would protect American jobs and ensure adequate steel supplies are available.
At a news conference last week, Treasury Secretary Janet L. Yellen declined to confirm whether CFIUS was reviewing the U.S. Steel deal, citing the confidentiality of its work. However, she acknowledged concerns about the company’s ownership.
“I certainly accept the president’s position that he has stated that the company should remain in American hands,” Ms. Yellen said. “He has not specifically said it is a matter of national security, but one that has to do with the well-being of the workers and the country.”
After Mr. Biden’s comments in April, Nippon Steel released a statement pushing back against suggestions that the deal was a threat. The company promised that jobs would be protected and that it planned to invest in Pennsylvania.
“There will be no factory closures and production and jobs will remain in America,” the company said.
The timing of the outcome remains an open question. It could depend on whether Nippon wants to complete the process and whether Mr. Biden wants to take action to ensure US Steel remains an American company before the election.
For some experts, the possibility that such a deal, involving a close U.S. ally, could unravel is a case of politics overshadowing policy.
“It’s an election year, and the idea of a foreign company in a swing state buying an iconic U.S. brand only provokes a knee-jerk political reaction,” said John Kabealo, a Washington-based attorney who specializes in cross-border transactions.