U.S. Steel and Nippon Sue Biden Over Decision to Block Merger

U.S. Steel and Japan’s Nippon Steel filed a lawsuit against the U.S. government on Monday, seeking to overturn the decision by President Biden to block their proposed merger, which had been previously thwarted last week due to national security concerns.

The legal action, lodged in a Washington federal court, accuses President Biden and other high-ranking officials of corrupting the review process for political purposes, claiming the block was harmful to steelworkers and the broader American steel industry. The companies argue that the decision was based on false pretenses.

The administration’s decision to block the merger followed a failure by a government panel, responsible for reviewing foreign investments, to reach a conclusion. In a statement last Friday, President Biden emphasized that his actions were aimed at protecting the strength of the U.S. steel industry, particularly ensuring it remains domestically owned and operated. This follows his previous commitment to safeguard U.S. Steel from foreign control.https://wordpress.com/

The companies are requesting that the Committee on Foreign Investment in the United States (CFIUS) re-evaluate the merger.

Additionally, the companies have filed a separate lawsuit targeting Cleveland-Cliffs, an American steel producer that had previously attempted to acquire U.S. Steel but was rebuffed. They also named Lourenco Goncalves, CEO of Cleveland-Cliffs, and David McCall, president of the influential union United Steelworkers. The lawsuit accuses Cleveland-Cliffs and McCall of colluding illegally to sabotage the U.S. Steel-Nippon Steel deal.

In response, McCall stated he would “vigorously defend against these baseless allegations,” while Goncalves dismissed the lawsuit as “completely baseless,” arguing that U.S. Steel and Nippon Steel were deflecting attention from their own shortcomings.

This legal maneuver represents a last-ditch effort by the companies to salvage the $14 billion merger, which has become entangled in election-year politics. U.S. presidents have significant power in determining national security threats, and historically, no transaction blocked under these powers has ever been overturned by the courts.

However, Biden’s decision to block the Nippon-U.S. Steel merger, especially with Japan being a close U.S. ally, has raised questions about whether the national security powers were being misused. Past instances of merger blocks have typically involved countries with adversarial relations to the U.S., such as China.

In a statement, the companies criticized the decision, calling it an improper use of national security powers aimed at influencing elections and settling political scores. They maintain that they are entitled to a fair process and had no option but to challenge both the decision and the process in court.

David Burritt, CEO of U.S. Steel, accused President Biden of blocking the deal in exchange for political favors, alleging that the president “owed the union boss a favor for an endorsement.” Burritt criticized the government’s handling of the issue, stating, “They failed because they didn’t follow the process, and we are going to right that wrong.”

The White House, however, defended Biden’s decision, citing the concerns raised by the national security committee about the potential risks to the U.S. steel industry.

Robyn Patterson, a White House spokesperson, asserted that “a committee of national security and trade experts determined this acquisition would create risk for American national security,” and emphasized Biden’s commitment to protecting U.S. security, infrastructure, and supply chains.

The lawsuit, which challenges Biden’s decision, was filed in the U.S. Court of Appeals for the District of Columbia Circuit and also names Treasury Secretary Janet L. Yellen, who heads CFIUS, and Attorney General Merrick Garland. The companies argue that the national security review, initiated by Biden’s public opposition to the deal last March, was politically biased and that the committee failed to engage with the companies when they offered to address any security concerns.

After a yearlong review, the interagency committee was split on the risks of the transaction, leaving the final decision to President Biden, who reiterated that U.S. Steel should remain under American ownership.

“It is my solemn responsibility as president to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry,” Biden said last Friday. “Blocking foreign ownership of this vital American company is a fulfillment of that responsibility.”

CFIUS, established in the 1970s to examine foreign mergers and acquisitions for national security risks, has increasingly become a politically charged body, with particular attention to Chinese investments. Since 1990, U.S. presidents have blocked eight foreign transactions on national security grounds, according to the Congressional Research Service.

The companies are hopeful that a 2012 case, where a Chinese firm’s bid to acquire U.S. wind farms was blocked and subsequently challenged in court, may provide grounds for revisiting the handling of the steel merger. In that case, the appeals court agreed that the Chinese company had a right to review and challenge evidence used to block the deal, ultimately leading to a settlement.

While the companies’ legal challenge differs from the 2012 case, a successful outcome could result in significant changes to the U.S. government’s authority over foreign transactions.

Legal expert Alexis Early noted that lawsuits against CFIUS are rare, and the litigation could take years to resolve. She also pointed out that the appearance of political influence over the committee’s decision could damage its credibility.

Biden’s decision has drawn praise from the steelworkers union but has been heavily criticized by economists and legal experts, who warn that it could deter foreign investment.

John Kabealo, a Washington lawyer specializing in cross-border transactions, criticized the president for undermining U.S. alliances and questioned the justification for blocking the deal. “It’s infuriating,” he said, “especially after Biden repeatedly criticized Trump for being xenophobic, only to now slap one of our most important allies in the face.”

Although former President Trump had previously expressed opposition to the Nippon bid, the companies remain hopeful that he might reconsider his stance if he is involved in negotiating a satisfactory resolution. However, on Monday, Trump made it clear that he still opposes the sale of U.S. Steel.

“Why would they want to sell U.S. Steel now when Tariffs will make it a much more profitable and valuable company?” Trump posted on social media. “Wouldn’t it be nice to have U.S. Steel, once the greatest company in the World, lead the charge toward greatness again?”