U.S. Steel's stock drops on report that Biden will block Nippon merger

By Steve Gelsi

CEO David Burritt has argued U.S. Steel needs $3 billion in upgrades from Nippon to compete

U.S. Steel Corp.'s stock fell more than 17% on Wednesday after reports that President Joe Biden plans to prevent the company from merging with Japan's Nippon Steel due to national-security concerns.

The Washington Post initially reported Wednesday that Biden plans to block U.S. Steel's (X) $14.9 billion merger with Nippon Steel (JP:5401) (NPSCY) in the face of bipartisan opposition that favors the company remaining under the control of a U.S.-based entity.

U.S. Steel's stock's drop of 17.5% on Wednesday ranks as its biggest one-day decline since it fell 26.8% in 2017, according to Dow Jones Market Data.

The potential deal rejection by the White House would brush against the U.S.'s relationship with Japan, a key ally in Asia.

The merger would create the third-largest steel company in the world, one with enough heft to compete against Chinese rivals.

The Committee on Foreign Investment in the U.S., which is reviewing the deal's impact on national security, has yet to formally make its recommendation to the president, the Washington Post reported, citing White House sources.

A U.S. Steel spokesperson said the company has not received any update or order on the CFIUS review process. The merger presents "the best future" for Pennsylvania and American steelmaking, the spokesperson said.

"We continue to stand by the fact that there are no national security issues associated with this transaction, as Japan is one of our most staunch allies," the U.S. Steel spokesperson said. "We fully expect to pursue all possible options under the law to ensure this transaction."

Earlier, U.S. Steel Chief Executive David Burritt told the Wall Street Journal that the $3 billion in plant improvements pledged by Nippon Steel will allow the company to maintain jobs and remain viable.

His comments came as U.S. Steel held an afternoon rally with employees in Pittsburgh on Wednesday to demonstrate support for the merger.

"We want elected leaders and other key decision-makers to recognize the benefits of the deal as well as the unavoidable consequences if the deal fails," Burritt said in a prepared statement.

Meanwhile, the United Steelworkers Union said it continues to oppose the tie-up, which it said includes a $70 million change-in-control bonus for Burritt.

"Today's pathetic attempt to orchestrate a rally in downtown Pittsburgh shows that U.S. Steel is becoming increasingly desperate to save the deal," according to a prepared statement from the union.

Burritt characterized the political fight over the deal as both "confusing" and "puzzling" in an interview with the Journal. On Monday, Democratic presidential nominee Kamala Harris said the company should remain U.S.-controlled.

However, Harris has not explicitly said she would kill the deal under U.S. laws that allow the president to weigh in on tie-ups that may pose a threat to national security.

Republican presidential nominee Donald Trump has said he would terminate the deal if elected in November.

Burritt, who has made few public comments about the proposed merger, said it would help revive the Mon Valley Works near Pittsburgh and another plant in Gary, Ind., and help keep the company's headquarters in Pittsburgh.

Meanwhile, Biden, with Harris at his side, hailed the western Pennsylvania city's heritage as a unionized steel-producing center during a Labor Day event.

Last week, Nippon sweetened its U.S. Steel offer by saying it would not lay off any hourly workers through the end of 2026. It also said it would roughly double its investment in U.S. Steel's aging plants to $2.7 billion in coming years.

-Steve Gelsi

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09-04-24 1610ET

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