US election requires nerves of steel

United States Steel Corporation (NYSE: X) is finding out just how complicated it can be to get a deal done during a presidential election year. After Japan’s Nippon Steel agreed to pay a massive premium to purchase the company late last year, politicians of all stripes in the US are hardening in their opposition to the idea of foreign ownership of the firm that just happens to be headquartered in the key battleground state of Pennsylvania. 

The latest twist in the saga—a report that President Joe Biden, who’s not running for re-election, is close to blocking the transaction—sent US Steel shares falling nearly 20% last week. The United Steelworkers union has opposed the deal over worries that it could lead to job cuts, and it endorsed Biden shortly after he first spoke out about the transaction earlier this year. It later extended that support to Kamala Harris after she took over at the top of the Democratic party’s ticket. 

At risk is the $15 billion deal that would pay $55 for each share of US Steel. The company’s stock price had surged from just over $20 since speculation about a possible transaction first emerged last year, but current trading around $33 suggests the market is doubtful that Nippon Steel will be able to close. As the Nov. 5 election approaches, it’s turned into one of the biggest election plays. 

The complex issue has involved shareholders, executives, workers, unions, lawmakers and even rival potential buyers. Republican nominee and former President Donald Trump, who imposed tariffs on steel imports during his first administration, has also spoken out about the deal, saying US Steel should remain American owned. In what’s expected to be a razor-thin vote in Pennsylvania, no one wants to alienate any voters in the country’s fifth most populous state. Lost in much of the debate is the fact that US Steel is no longer the largest steel producer in the country, or that it employs just a fraction of the people it did at its peak.

Nippon Steel has so far shown no signs of backing down, working overtime to make its case and detail an ownership structure it says would keep the firm American through the use of a New York-based subsidiary. It has promised to keep its Pittsburgh headquarters, said US citizens would make up a majority on the board of directors and pledged to prioritize production to meet US demand. The Japanese company also has announced billions of dollars of new investment. It last said that it expected the deal to close in the third or fourth quarter.

While US Steel shareholders have already approved the all-cash transaction, CEO David Burritt recently threatened a sort of poison pill by saying the company may have to close plants in Pennsylvania and possibly move its headquarters from Pittsburgh if Nippon Steel’s bid is unsuccessful. It’s a statement that’s not gone unnoticed by local politicians, some of whom have started to support the deal.

“Blocking this sale only harms Pennsylvania workers and families,” state senator Kim Ward, a Republican, wrote in an opinion editorial last week. “We must not allow misguided politicians or special interests to make decisions that harm our communities. Nippon has made clear commitments that must be taken into account.”

Ward had previously criticized ongoing efforts by Cleveland-Cliffs (NYSE: CLF), a competing US steel company headquartered in its namesake city in next-door Ohio, to buy US Steel. Its CEO, Lourenco Goncalves, has been a vocal critic of Nippon Steel’s plan since his own offer of $54 per share was rejected. He said last week that he still wanted to buy the company, albeit at a much lower price. 

“I can’t let it go,” Goncalves said in a recent earnings call. “And for my price, that’s now in the twenties, we can have a deal. You negotiate with me and, and I’ll give you my price, $29.” 

It’s tough talk from a hardball negotiator who seems as desperate as ever to buy the rival firm, even though the transaction with Nippon Steel isn’t dead yet. Goncalves would also presumably face competition if the current deal fails, with ArcelorMittal (CBOE: MT)—a Luxembourg-based steel multinational—having previously been named as a potential suitor, in addition to Esmark Inc. 

Nippon Steel’s best bet for now may be to try and delay any decision until after the election, and then keep its fingers crossed and hope the political spotlight shifts away. It could also appeal any unfavorable outcome in court. Investors, meanwhile, should prepare for more volatility as the matter reinvigorates debate about issues ranging from the role of allied countries in the nation’s economy to the continued preeminence of the US dollar. Amid all the noise, one thing looks certain: at $33 per share, US Steel could be a steal.