US Steel (X) Shares Dive as Harris Joins Trump in Opposition to Nippon Steel Deal

US Steel (X) is experiencing a significant pullback in its stock price following comments from Vice President Kamala Harris opposing its pending acquisition by Nippon Steel.

The political opposition, combined with heightened regulatory scrutiny and union skepticism, has cast doubt on the deal's likelihood of closing, creating uncertainty for investors and stakeholders.

Background of the Acquisition and Its Implications

In December 2023, US Steel agreed to a $55 per share all-cash acquisition offer from Nippon Steel, Japan's largest steelmaker and one of the largest globally.

The deal, which offered a 40% premium to US Steel's stock price at the time, was seen as a substantial improvement over an earlier offer from Cleveland-Cliffs (CLF) in August 2023. Cleveland-Cliffs had proposed a mix of cash and stock valued in the $35 range.

The Nippon Steel offer represented a much stronger bid, which led to US Steel's decision to hold out for a better deal. However, this decision set the stage for a highly politicized debate, especially in a pivotal swing state like Pennsylvania, where US Steel has deep roots.

Political Backdrop and Regulatory Hurdles

The acquisition of US Steel by a foreign entity, particularly during a US election year, was always going to be controversial.

Political figures from both major parties have weighed in, including President Biden, former President Trump, and Vice President Harris, all expressing disapproval of the deal. This bipartisan opposition adds a layer of complexity to the acquisition process.

The Unites Steelworkers union, representing a significant portion of US Steel's workforce, has also voiced concerns about the acquisition, fearing potential job losses and plant closures, despite Nippon's pledges to invest in the facilities.

Currently, the acquisition is undergoing an antitrust review by the Department of Justice and a national security review by the Committee on Foreign Investment in the United States (CFIUS).

Both reviews are crucial hurdles for the acquisition, and the outcome of these reviews remains uncertain. US Steel has indicated that it is making progress on these regulatory processes, with a potential closing anticipated in the latter half of 2024.

However, the continuing political and union opposition may complicate these regulatory reviews.

Nippon Steel's Strategic Moves and Investor Sentiment

In an effort to alleviate concerns about potential plant closures and layoffs, Nippon Steel has announced additional investments in US Steel’s Mon Valley Works and Gary Works blast furnace facilities. These new investments, on top of a prior commitment of $1.4 billion, are intended to extend the operational life of key integrated assets.

By making these commitments, Nippon Steel aims to signal its intention to maintain and enhance US Steel's production capabilities in the United States rather than dismantle them. If Nippon Steel's goal were to close these facilities, it is unlikely they would be committing such substantial capital toward upgrades.

Despite these efforts, investor sentiment remains skeptical. US Steel's stock continues to trade significantly below Nippon's $55 per share offer price, indicating widespread doubt among investors that the deal will ultimately be approved. Given the intense political climate and the upcoming elections, the timing of regulatory approval may be critical.

While regulatory reviews are theoretically independent of political influence, the optics of approving a foreign acquisition of a major US manufacturer during an election cycle are not favorable.

Possible Scenarios and Future Outlook

One potential scenario for navigating the political and regulatory landscape could involve a delayed approval process, where a decision is made after the election but before the inauguration. This timing might reduce some of the political heat surrounding the transaction.

However, it is still uncertain whether this strategy would be effective or whether it would face additional scrutiny from the new or outgoing administration.

If the deal does not receive approval, it is uncertain whether Cleveland-Cliffs or another potential suitor would return with a new offer. Cleveland-Cliffs’ initial interest in acquiring US Steel may have been a catalyst for Nippon Steel's decisive action, suggesting there could still be interest from other parties.

For now, US Steel remains in a holding pattern, with investors keenly watching for any signs of progress or setbacks in the regulatory reviews.

In conclusion, while Nippon Steel and US Steel are actively working to secure the necessary regulatory approvals and mitigate concerns, the path forward is fraught with challenges. Investors should remain cautious as the political dynamics, regulatory processes, and market conditions continue to evolve.