A challenging moment lies ahead. Sometime in the next week, US President Joe Biden is expected to block a $14.9 billion takeover of US Steel by Nippon Steel, and it seems this decision rests on flimsy reasoning. This move could signal the end of the free-market capitalism era that has fueled prosperity in the US and beyond. It appears to be a move that, at best, can be described as motivated by crony capitalism and, at worst, by corruption. This decision might offer insight into the future landscape and investment opportunities.
To provide some context: US Steel, once a titan of American industry, has been struggling to stay afloat for years. Currently, it sits as a company with a $7 billion market cap, likely worth only half of that if the merger and acquisition premium collapses.
Through a remarkable series of negotiations, US Steel managed to broker a deal to sell itself for nearly $15 billion. This arrangement includes a raft of commitments to maintain jobs and invest $2.7 billion into revitalizing its old, inefficient plants in the rust belt.
This deal would be a substantial victory for workers waiting on the upgrades—which could stave off a 2026 plant closure—and a win for the US, as it strengthens its steel production through a company that has managed to thrive despite global challenges, like the flood of Chinese steel.
The rationale behind blocking the takeover verges on absurdity. It relies on some strange paranoia that Japan, a longstanding ally, might undermine US operations—despite Nippon Steel’s willingness to pay a significant premium and pour massive investments into the venture.
There’s one person conspicuously rooting against this deal: Lourenco Goncalves, the CEO of Cleveland-Cliffs. His motive? He’s eyeing a near-monopoly on American-produced blast-furnace steel and isn’t eager for competition from Nippon Steel.
In today’s America, when competition seems insurmountable, the strategy is to manipulate the rules. As the Pittsburgh Post-Gazette bluntly stated, Cleveland-Cliffs simply wishes to avoid rivalry with Nippon Steel.
Goncalves’ stance is somewhat understandable if seen through a protective lens. Decades ago, American companies like Westinghouse would have preferred to keep out foreign competitors, yet embracing competition brought industrial success. Just look at how affordable large-screen televisions have become.
Admittedly, there’s a legitimate argument for keeping Chinese goods—those which might compromise national industry—at bay. Yet, Nippon Steel’s proposal involves building capacity in the US, thereby aligning with former President Donald Trump’s call for foreign firms to establish roots in America in exchange for market access.
Ironically, the US is incentivizing companies like South Korea’s Samsung and Taiwan’s TSMC to build chip factories domestically, but it refuses a similar proposal from Japan on national security grounds? This line of reasoning strains credulity.
According to the Washington Post, there’s more beneath the surface:
“In several phone calls with investors this year, Lourenco Goncalves, CEO of Cleveland-Cliffs, repeatedly claimed that the CFIUS process would be manipulated by the President to obstruct the acquisition. Goncalves and David McCall believe they’ve received assurances from top officials within the administration.”
For those scrutinizing the deal, the conclusion is clear-cut: it aligns with legal standards, national interest, and benefits workers. Media outlets like Bloomberg, NYT, WSJ, and local Pittsburgh press, along with 20 mayors from steel-producing areas, advocate for its approval. Even though the United Steelworkers union, led by McCall, who has links to Cleveland-Cliffs, seems hesitant, substantial evidence indicates the majority of steelworkers are in favor.
Nevertheless, the market predicts only a 10% chance of Biden approving the transaction.
This is the reality America finds itself in now. For instance, Tesla’s stock jumped 70% after the recent US election—not because of favorable policies, but due to Elon Musk’s burgeoning ties with Trump. The market is aware that American politics now mirrors parts of the world where cozy government relationships can translate to market success.
There was a glimmer of hope that after election fervor calmed, the deal would proceed, relying on America’s enduring belief in the principles that contributed to its wealth. Yet, history shows that cronyism and corruption tend to prevail, and the famed Shining City on a Hill now seems reserved for those best connected rather than those most worthy.
