Final Thoughts

Final thoughts

Written by Michael Cowden

Bloomberg has reported that Nippon Steel’s $14.1-billion deal for U.S. Steel might not close until 2025 – well after the Q2/Q3 2024 close date both companies have guided toward.

That’s because a national security review of the deal ($14.9 billion if you include the USS debt Nippon Steel would assume) by the Committee on Foreign Investment in the United States (CFIUS) could take longer than initially expected, Bloomberg reported.

To be clear, a CFIUS review on its own was not a surprise. Nippon Steel and U.S. Steel requested one when they announced the deal on Dec. 18.

I don’t have any inside information on why such a long review might be necessary. Nippon is a Japanese steelmaker. And Japan is a key US ally – one host to significant US military operations.

That Atlantic Council, a think tank, summed up the unusual optics in a column on Jan. 8: “Washington blocking such a sale to a close Group of Seven (G7) partner would indicate that CFIUS has veered from narrow national security concerns to the business of broader economic protection.”

Enter election-year politics

Yes, but from a domestic political standpoint, I can see why kicking the can into 2025 might make some sense.

On the one hand, President Joe Biden probably doesn’t want to alienate United Steelworkers (USW) union members – a key constituency in battleground states like Minnesota, Michigan, Pennsylvania, and Wisconsin. Especially in what could be another close contest between him and former President Donald Trump.

The USW, meanwhile, wants an acquisition by Cleveland-Cliffs. And the union has ramped up a campaign against the Nippon deal – contending that certain aspects of it violate its labor agreement with U.S. Steel.

“The USW is prepared to continue this grievance process all the way to its conclusion as we hold management accountable for trying to cash in by selling out American steelworkers,” USW international president David McCall and negotiating committee chairman Mike Millsap said in a letter to union members on Friday.

Shareholders along for the ride?

On the other hand, it’s hard to see Wall St. – or anyone with shares in domestic steelmakers – taking kindly to government intervention. If U.S. Steel is worth $14.1 billion – or $55 per share, a huge premium to where shares were before the deal was announced – then other domestic steelmakers are in theory worth a lot more too.

But how do you determine valuations if Washington were to intervene and, citing national security, say that a lesser offer for U.S. Steel was better? And potentially a lot less if the next-best offer is Cleveland-Cliffs, which bid $7.3 billion for U.S. Steel over the summer.

It might be tempting to set aside what the USW is saying as noise. But Cliffs has made some moves recently that hint at a serious attempt to derail the deal.

The long shadow of Wheeling-Pittsburgh, CSN and Ron Bloom

Cliffs announced a price increase on Jan. 3. That announcement got more attention in the market that day. (Would it stick? Would Nucor follow?) The steelmaker also announced that it was appointing Ron Bloom to its board of directors. That second announcement deserved more attention than it got.

Bloom is a managing partner and vice chair at Toronto-based private equity firm Brookfield Asset Management. He began his career as an investment banker at Lazard. Bloom has also held key roles in the Obama, Trump, and Biden administrations. In short, he has ties to both Wall St. and to Washington.

You could say that’s a prerequisite for being a lobbyist. What really sets Bloom apart are his ties to and history with the steel industry and the USW.

He worked in 2002, for example, to advance the sale of the former LTV Steel and the former Bethlehem Steel to the International Steel Group (ISG), which was headed by Wilbur Ross – Commerce Secretary for Trump. ISG then sold those mills to ArcelorMittal, and ArcelorMittal in 2020 sold them to Cliffs.

Does someone with deep ties to politics, finance, manufacturing, and labor have enough clout to help block a nearly $15-billion deal?

Maybe. Here’s the part of that Jan. 3 release that bears repeating nearly two weeks after it was first circulated. “Bloom was also a key player when the USW successfully used the union’s successorship rights in their Basic Labor Agreement to block the sale of Wheeling-Pittsburgh Steel to a foreign buyer in 2007.”

In case you missed the point, Cliffs chairman, president, and CEO Lourenco Goncalves in the same release said: “We have recently seen a case of stunning disrespect to the wishes of labor in our industry, and Ron Bloom being on our Board will ensure that all stakeholders have a voice.”

There is a lot to unpack there. Let’s take a trip in the way-back machine.

Wheeling-Pittsburgh – whose operations included what is now JSW Steel USA’s sheet mill in Mingo Junction, Ohio – was in financial trouble in the early 2000s. Brazilian steelmaker Cia. Siderurgica Nacional (CSN) in 2006 agreed to buy the struggling company and combine it with its operations in Terre Haute, Ind. (now SDI Heartland).

The idea was for Wheeling-Pittsburgh to supply substrate to Terre Haute, which makes value-added products such as pickled and oiled (P&O), cold rolled, and coated sheet. It made sense. But then Sewickley, Pa.-based service center Esmark, with union support, succeeded in stymying the CSN deal and acquiring Wheeling-Pittsburgh in 2007.

Sounds familiar, right?

Cliffs could be implying that history will repeat itself, that Nippon Steel is what CSN was nearly 20 years ago. And that a big, foreign steelmaker’s bid for a smaller US one will again be derailed – thanks in part to union efforts.

Goncalves, Bloom, and the USW would presumably have to come up with an offer to match or better the $14.9 billion that Nippon Steel has agreed to buy U.S. Steel for. Can they? If not, what would the next-best offer be?

What comes next?

Another lesson from history: Yes, Esmark blocked CSN and successfully acquired Wheeling-Pittsburgh in November 2007. Less than a year later, Esmark sold the company to Russian steelmaker Severstal for $1.25 billion.

So what, exactly, was accomplished? A potential Brazilian owner was replaced by a Russian owner. How did that stop foreign ownership of US mills or abate concerns about national security?

This much is fair to say in the meantime. We spent four months, August to December, waiting to learn who the winning bidder for U.S. Steel would be. We might spend a lot longer than that waiting to hear whether the deal will close.

It might be a long shot. But if Cliffs and the USW succeed in blocking a deal, what comes next?

Nippon Steel has pledged to keep U.S. Steel’s headquarters in Pittsburgh, where the USW is also based. What happens to USS headquarters if Cliffs ultimately succeeds? I’d wager you a case of Iron City beer that HQ would move to Cleveland.

Michael Cowden

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