Nippon Steel’s bid for U.S. Steel driven by brisk demand in U.S. | The Asahi Shimbun: Breaking News, Japan News and Analysis

Nippon Steel Corp. has had to take nerves of steel in its takeover plan for U.S. Steel, which has run into fierce opposition from steelworkers up to the White House. 

However, the Japanese steelmaker has yet to give up on the deal. 

Nippon Steel remains intent on the takeover plan, despite the arduous path, because the company sees in it a golden opportunity for full-scale entry into the promising U.S. market.

“There has been no change in the situation wherein (the acquisition plan) is being discussed with the (Nov. 5) presidential election in mind,” Nippon Steel President Tadashi Imai said at a news conference on Sept. 26. “We cannot afford to be optimistic about it.”

The situation over the takeover bid has become strained because the Committee on Foreign Investment in the United States (CFIUS), a U.S. government panel in charge of reviewing acquisition plans, told Nippon Steel in late August that the deal posed “national security risks.”

Speculation also emerged that U.S. President Joe Biden could announce a decision to block the deal.

Nippon Steel, however, was permitted to withdraw its application for a CFIUS review and refile a fresh application. A new review term of 90 days was set, granting “extra time” to the negotiation timetable.

Despite the twists and turns, Imai reiterated emphatically during the Sept. 26 news conference that his company will still seek to acquire U.S. Steel by the end of this year.

Nippon Steel set out on the takeover bid at this sensitive time ahead of the presidential election because it is hoping, even by taking the risk, to establish a foothold in the U.S. market, which is expected to grow, and push “local consumption of locally produced goods” in the United States.

Nippon Steel is the world’s fourth largest steelmaker.

Demand for steel in Japan has been dropping steadily against the backdrop of the nation’s shrinking population.

Nippon Steel officials therefore decided that sustained growth of the company would require full-scale entry into overseas markets, which means that blast furnace operations and other upstream processes will also have to be undertaken abroad.

The Chinese market, the world’s biggest, is seeing a glut in steel because of a slump in the real estate industry. And Nippon Steel already has operation bases in India.

Demand for steel in the United States, in comparison, is 1.7 times that of Japan and is bigger than in any other advanced nation. The United States is also expected to see a continued population growth and a homecoming of the manufacturing industry.

“You could seldom make inroads into the U.S. market by exports because it is geographically far-flung (from Japan) and there is strong protectionism there, but you could make money easily there if only you become an insider through an acquisition,” said Atsushi Yamaguchi, a senior analyst with SMBC Nikko Securities Inc.

U.S. Steel, once the world’s largest steelmaker, now ranks only 24th.

The company put itself up for sale in August last year after it lost its competitive edge and fell into a business slump, due to age-related deterioration of its equipment and for other reasons.

Nippon Steel was engaged in acquisition talks with U.S. Steel, following a bidding process, before it ended up embroiled in the political situation surrounding the U.S. presidential race.

CFIUS’ decision appears likely to remain shelved until after the presidential election. There is, however, yet another obstacle.

The United Steelworkers (USW) labor union is opposed to the takeover plan for reasons including concerns about its members’ pensions. USW also organizes employees of Cleveland-Cliffs Inc., a major U.S. steelmaker that was a rival to Nippon Steel in the bidding for U.S. Steel.

With the presidential election drawing near, the USW’s political clout is at its peak. The union leadership has endorsed Vice President Kamala Harris, the Democratic Party candidate, in her bid for the presidency over Republican candidate Donald Trump. 

If the takeover talks were to fall through, Nippon Steel could be obligated to pay $565 million (82.55 billion yen) in damages for breach of contract and would also have to review its growth strategy.

If the acquisition were to take effect, by contrast, the company would face the challenge of having to handle union-management relations over the mid- to long term while at the same time also realizing growth that would befit the huge investment of $14 billion in the takeover costs alone.