Local economic development leaders in US Steel’s heartland states of Pennsylvania and Indiana have thrown their support behind the group’s takeover by Nippon Steel, amid rumours President Joe Biden will block the $14.1bn deal on national security grounds.
The Japanese firm’s pending acquisition of the iconic industrial group has faced pushback since it was announced last December. But the situation has climaxed in recent weeks following reports the president is considering stopping the transaction and US Steel saying it may shutter some operations if the deal falls through.
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The deal has been charged with politics due to opposition by the powerful United Steelworkers union (USW) and both Democrats and Republicans trying to win blue-collar votes ahead of the November election, especially in battleground state Pennsylvania, which hosts US Steel’s headquarters and some of its biggest operations, and which pundits believe could decide the election.
'A matter of survival'
But leaders in areas where US Steel has large activities warn that national politics is risking local jobs in rust belt states suffering from deindustrialisation and which stand to gain under Nippon’s planned investments.
“The proposed acquisition of US Steel by Nippon is a once-in-a-generation opportunity for Gary and the entire American steel industry to remain competitive,” said Eddie Melton, mayor of the city of Gary, Indiana, home to US Steel’s biggest manufacturing plant.
The deal is “a matter of survival” for the company town founded by US Steel along the shores of Lake Michigan in 1906, Mr Melton added. The city’s population of 69,000 has more than halved since 1960, and in late 2022 US Steel shut down the majority of its tin operations at the site, laying off 244 workers.
Nippon Steel pledged to invest $2.7bn across its would-be US operations, which a standalone US Steel is not in a position to make. The Japanese company also promised not to transfer capacity abroad or cut jobs, and keep its Pittsburgh headquarters.
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“Although the decision on the pending acquisition will be made at the federal level, any and every decision that will be made will have a local impact,” said Mr Melton, adding: “I believe that our community deserves to be prioritised and protected.”
US Steel’s other flagship operations are in Mon Valley, south of Pittsburgh, Pennsylvania. The deal “is undoubtedly a win-win situation for the people of our region, promising a brighter economic future”, said Stefani Pashman, CEO of the Pittsburgh region’s Allegheny Conference on Community Development, in a statement on September 5.
“With the information available to us, we must assume, at this time, that the deal proposed by Nippon Steel is the best option for our region’s workers and the future of our economy,” she added.
US Steel trajectory
The trajectory of US Steel’s business has mirrored the decline of US steelmaking’s global competitiveness following the expansion of cheaper production in China and a growing industry in India.
The company’s headcount has nearly halved over the past two decades, from some 43,000 in 2004 to fewer than 22,000 today. On top of shuttering the Gary tin facilities, since 2019 the company has ceased some operations in locations including Illinois, Ohio and Clairton in Pennsylvania.
Shareholders in US Steel, a public company, overwhelmingly voted in favour of the deal, which valued the company at $55 per share, a 40% premium on its market valuation at the time.
More on Nippon Steel and US investment screening:
‘Unavoidable consequences’
Nippon’s bid for US Steel has manifested sharp divisions within the country over foreign direct investment (FDI) policy making and economic development.
Local officials’ support in Indiana and Pittsburgh runs counter to the messaging from Washington DC, with Mr Biden, presidential candidates Kamala Harris and Donald Trump, and lawmakers from both sides of the aisle publicly stating that US Steel should remain domestically owned.
Meanwhile the USW opposes the deal over concerns Nippon won’t uphold the union members’ labour contracts, could lay off workers and focus more on its overseas operations despite the company’s pledges not to do so.
The deal’s local economic stakes grew on September 4 when US Steel CEO David Burritt warned of “unavoidable consequences” if the deal isn’t approved. It would raise “serious questions” about the firm remaining headquartered in Pittsburgh, force the closure of some of its older steel mills, and forego Nippon’s planned investment, which a standalone US Steel is not in a position to make.
“How unfortunate would it be if, in an effort to win [the vote in] Pennsylvania … the deal is blocked and then US Steel lays off workers,” said Nancy McLernon, CEO of Global Business Alliance (GBA), which represents foreign companies’ US operations.
Rarely-used powers
GBA is one of seven US business groups to sign an open letter to the government last week outlining concerns that US national security screening — carried out by the Committee on Foreign Investment in the United States (Cfius) — “is being used to further political agendas that are outside the committee’s purview and putting the US economy and workers at risk”.
The national security issues raised by Nippon’s transaction include reduced domestic steel production needed for critical transportation and infrastructure projects, reported Reuters, citing a letter Cfius sent to Nippon. That’s an expansion from the national defence issues which were Cfius’s historical focus.
The president can block an inbound investment on national security grounds if Cfius’s review is inconclusive. This has happened only eight times to date, and all but one of those has been against an investor from China.
Japan, on the other hand, is a close ally and according to fDi Markets data the biggest source nation for FDI into the US since 2003, as measured by announced capital expenditure.
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