Takahiro Mori, the vice chairman of Nippon Steel, has an op-ed in the Wall Street Journal explaining why they are taking President Biden to court to get the court to block the president’s ban on Nippon Steel’s purchase of U. S. Steel. Here’s the conclusion:
Nippon Steel and U.S. Steel will do whatever it takes to close this transaction. It is the only viable deal that will keep U.S. Steel intact, keep unionized blast furnaces running, and protect jobs. We remain interested in exploring possible partnerships with the new administration to invest in and grow U.S. Steel to benefit American workers, customers, and national security.
We still have confidence in the justice and fairness of the U.S. and its legal system. We believe our case is strong, and we look forward to our day in court.
I don’t have any inside information on this matter but my meager understanding is that
- U. S. Steel is for sale
- A number of bids have been received including at least one U. S.-based company
- Nippon Steel has made the highest bid
- Nippon Steel has pledged to make substantial investments in U. S. Steel mills to bring them up-to-date
- No U. S.-based company is likely to be able to come up with the money to a) buy U. S. Steel and b) modernize the facilities
Mr. Mori thinks the president’s motivation for blocking the sale is not security but domestic politics:
During Mr. Biden’s re-election campaign, the leadership of the United Steelworkers union announced in February that the president had personally assured them that he had their backs as they opposed our deal. He publicly announced his opposition to our partnership in March—before Cfius began its formal review—and received the USW’s endorsement days later.
Cfius, meanwhile, barely engaged with us. After receiving a letter from the committee last September—filled with USW leadership’s talking points—our companies submitted four draft National Security Agreements throughout the fall and winter to address purported concerns.
We don’t believe there was any national-security concern to begin with; Japan is one of America’s staunchest allies. Cfius didn’t send us a single written comment on or serious question about our proposals before referring the transaction to the president.
We doubt the feedback from the committee contributed to Mr. Biden’s decision. His mind seemed made up early last year, judging from his campaigning. The political pressure from his public statements, we think, also tainted the Cfius review, resulting in a no-consensus decision from the committee that allowed the president to deliver on his promise to USW leadership.
My offhand guess it that the USW believes, incorrectly, that a U. S. buyer will maximize the number of union jobs retained. I strongly suspect that if U. S. Steel is bought by a U. S. buyer the Gary facility will be closed or, at the very least, substantially downsized. That would be a disaster for Gary to say the least.
My question is what’s the objective? Since President-Elect Trump has expressed opposition to Nippon Steel’s acquisition, that question is all the more important. If it’s to ensure that more steel is produced in the U. S., letting Nippon Steel buy U. S. Steel is probably the best way to achieve that.
That was an awful decision by Biden. I could sort of understand acting like you opposed the deal during the election thinking it might pick up more votes but once the election was over it should have been approved. Maybe in some ideal world the best outcome is that ownership and hence profits remain in the US but that’s not what was on the table.
Steve
Its been a long time since i followed the capabilities of various plants.
I was surprised to hear that Gary Works had declined so much. I’ll skip the politics.
U. S. Steel is for sale
– they desperately need modernization capital
A number of bids have been received including at least one U. S.-based company
– Nippon bid $15MM. Cleveland Cliffs and Nucor $8. That’s huge. Nucor’s interest is that CC/US would spin out Big River Steel. Its basically a flat rolled mini-mill. CC’s CEO is talking large about modernization and job retention, but I don’t know if he is really bottom fishing. Just a note. CC purchased my old firm, Inland, and Bethlehem. The Harbor Works and Burns Harbor are both fine facilities. One is in Valparaiso and the other in East Chicago. And Gary Works is in between. Hmmmmm. 2000 jobs at Gary (down from 30,000 long ago)
Nippon Steel has made the highest bid
— I think its $55/share vs $36.
Nippon Steel has pledged to make substantial investments in U. S.
Steel mills to bring them up-to-date
— I hear the an 84 inch hot strip mill and a blast furnace retrofit are being contemplated
No U. S.-based company is likely to be able to come up with the money to a) buy U. S. Steel and b) modernize the facilities
–probably not. but this is about union leadership, not workers or communities
MM = 1,000,000? Seems way too small. The bid ought to in the billions.
I haven’t seen that notation since the 60’s. It used to be common in mining and petroleum (mille x mille = 1,000 x 1,000). Apparently some benighted financial institutions still use it to confuse clients.
This deal represents the ongoing deindustrialization of America. US Steel’s bean counters refused to allow the investments needed to modernize the plants. This is an old, tiresome story with USS. Back in the 60’s, they were still running furnaces built in WW I. They hadn’t yet heard of the basic oxygen process.
The is the same reason Intel got out of high end chips. They couldn’t make them profitably. Now, the future of the proposed Intel chip foundry in Ohio is in doubt, because the US subsidies come attached to all sorts of welfare/environmental featherbedding.
It’s billion.
“Let’s not invest in the physical plant. Let’s become a financial services company instead!”
The number of major companies that went down that path is legion. Ford, GE just to name two. Then that flopped. Auto manufacturers then decided to be IT companies. That will probably flop, too.
Would Tesla still exist absent govt support? I know Musk fans hate to hear it but EVs received a lot of subsidies and Tesla received a lot of tax credits. So Tesla is now at the point where I think they survive but it’s not clear to me that they would have survived the early years absent the subsidies.
Steve
Yes, Bob. That’s a typo. Billion.
A note on BOF’s, and a bit of history. Back when steel was king the Kennedy administration was jaw boning the industry big time. I don’t know what all they threatened but Kennedy was worried about a strike, and the relevant point, price hikes due to undercapacity. They were all over the industry execs to build capacity.
At this point in time, the early 60’s, the basic oxygen furnace and continuous casting was just coming to the fore. US makers knew all about the technologies, but Kennedy was on them to invest now. As I said, who knows what the back room arm twisting was like. And so an entire capex cycle was devoted to open hearths and ingot casting. At just the wrong time. By the second half of the 60’s BOFs and continuous casting was everywhere. Just as an aside, I spent several years at Inland’s No. 4 BOF. It was a (hot) shop making low carbon AK steel for auto and appliance. Later, as ladle metallurgy (further refining and control) came to the fore, I was working those stations.
I don’t think that either Tesla or SpaceX would exist without government support. Amazon would not be where it is without tax breaks in the early years.
“Would Tesla still exist absent govt support?”
It should noted which governments, I think Chinese and European government subsidies are a bigger deal to Tesla then US government subsidies. Its arguable until about 2018 or so, I don’t believe US subsidies had much to do with Tesla’s survival because Tesla’s revenue consisted of $100K luxury vehicles whose buyers were price insensitive to any tax credits, and fuel efficiency emission credits from other auto makers. Also, Tesla had no profits and survived on capital injections from investors.
As for SpaceX, government support was critical to its survival (they nearly went bankrupt trying to get their first government contract with Falcon 1). But the government support did not mean government favor. Until a couple of years ago, the government’s largasse was focused on its traditional space contractors, Boeing and Lockheed.
Today through, even if the government pulled its direct support for both companies, Tesla and Spacex would be quite viable on their own.
One other note on the other post; if you look at the biggest companies today vs 2007; I was surprised it does seem some “de-financialization” has occurred. Out of the top 10 largest public companies, I would consider Birkshire Hathaway to be “financial”. And 5 of the companies to be “capex heavy” (Microsoft, Google, Amazon, Facebook, Tesla); shifting away from asset light as the only way to go.